Making a Different Kind of Big
"Geography is dead!"
This pronouncement has become a cliche among the advocates
of digitalization and telecommunications. The advent of universal and
inexpensive communication is said to usher in an era where distance,
place, real estate, and geography are irrelevant. The notion is only
Place still matters, and will for a long time to come.
However, the new economy operates in a "space" rather than a
place, and over time more and more economic transactions will migrate to
this new space.
Geography and real estate, however, will remain, well...real.
Cities will flourish, and the value of a distinctive place, such
as a wilderness area, or a charming hill village, will only
Tom Peters, the perennially entertaining management guru,
likes to scare the daylights out of dazed American CEOs by proclaiming,
"Think of Asia, Latin America, Eastern Europe! Theyre smart,
fast, and cheap. And theyre next door. Your worst nightmare of a
competitor is now only one-eighth of a second away!" Thats
the maximum time it takes a signal to travel from one end of the globe
to the other. These hungry competitors can do anything you can do,
cheaper, and they all are, at most, only an eighth of a second away. In
short, Peters proclaims the death of distance and the arrival of
Thats the bad news. The good news is that those
geographically far away competitors will never be any closer than an
eighth of a second. And for many things in life, that is too far
A kiss for instance. Or playing sports. Or getting to know
flowers. Start-up companies selling futuristic multiplayer online games
have discovered that the inherent delay in the speed of light circling
the globe causes real-time experiences to fail. That noticeable gap
makes no real difference in the transmission of a book order, or a
weather signal, but enough of life thrives on subtle instantaneous
responses that one-eighth of a second kills intimacy and spontaneity.
Thus actual real-time face-to-face meetings will retain their
irreplaceable value. Thus airline travel will increase as fast as online
communication increases. Thus cities will endure as lag-free places
where there are no one-eighth second delays.
People will inhabit places, but increasingly the economy
inhabits a space.
A place is bounded by four dimensions. For two things to be
adjacent, they must be close to each other on one of four axes: up/down,
left/right, back/forth (x, y, z), and time. As rich as physical places
are (and we still dont appreciate how rich they can be), they
limit the number of connections that entities can make within them. A
person in a place can only interact with a fixed and rather small number
of other people in the same vicinity. Artifacts can touch only the other
artifacts in close proximity.
A space, unlike a place, is an electronically created
environment. It is where more and more of the economy happens. Unlike
place, space has unlimited dimensions. Entities (people, objects,
agents, bits, nodes, etc.) can be adjacent in a thousand different ways
and a thousand different directions. A person in an electronic space can
communicate to 10 million people at once, or interact in a game with
20,000 othersthings that would be impossible in physical space. An
automobile can be linked in hundreds of directionsto other cars
stuck in traffic miles away, environmental monitors, satellite
navigation antennas, toll collectors, and the manufacturers
engine-performance center. In physical place a car can only interact
with those within braking distance of its front and rear bumpers.
The invention of communication allowed life to evolve from globular
organisms into fantastic beings, just as networks allow place-based
firms to blossom into fantastic spaces.
Spaces arent bound by proximity. The advantage of
spaces is rooted less in their nongeographical virtuality and more in
their unlimited ability to absorb connections and relationships. By
means of communications, network spaces can connect all kinds of nodes,
dimensions, relationships, and interactionsnot just those
physically close to one another.
The popular suffix of "space" is a truncated
version of cyberspace, a science fiction term for an immersive
electronic space. But the roots of the term are deeper. The technical
concept of "space" came out of mathematics and computer
science. Space is one way scientists describe complex systems; very
complex spaces have their own unique dynamics. The notation of space is
particularly handy when describing the ordinarily vague and indefinite
form of networks. The net, as it encompasses billions of objects and
agents (there are already more than 100,000 cameras on the net),
operates in what mathematicians call "very high dimensions,"
and has correspondingly novel dynamics. As electronic mediated
environments expand, place has less influence and complex space more. As
the economy infiltrates each network medium, it trades a physical
marketplace for a conceptual marketspace.
The network economy shifts places to spaces.
In the new realm of high dimensional spaces, the network
economy exhibits the following space-based behaviors.
- A different kind of bigness
- Rampant clustering
- Peer authority
The industrial economy made it impossible to live next door
to the source of all the goods consumers desired. If you wanted bananas,
many intermediaries had to handle the fruit between the plantation in
Honduras and your kitchen. Between the author of a book and you there
needed to be a chain of editors, bankers, printers, distributors,
wholesalers, and booksellers. Between you and good health care were
doctors, nurses, insurance behemoths, and hospital staff. Between you
and the car of your dreams stood a line of miners, smelters, engineers,
manufacturers, railroad yards, showrooms, and salesmen. Each one of
these agents moved the good or service along; some by completing the
product (the car engineer) or customizing the service (the hospital
staff), and some simply by physically moving it toward you (the banana
boat). In business theory this line came to be known as the value chain.
Each intermediate link in the long chain of creation added some measure
of extra value, justifying the cost the link added to the goods
final price. Companies competed to insert themselves into a value chain,
then to expand their control of greater lengths of the chain.
One of the very first noticeable effects of computers and
networked communications was the alarming way they disrupted traditional
value chains. Futurist Paul Saffo calls the multiple interactions needed
to survive in the new economy a move "from value chain to value
In the marketspace of networks, value flows in webs.
Many classic value chains were crowded with intermediaries
who distributed a completed product or service. Take the banana
wholesalers. Although they physically handled the product and often
stored it in inventory at great cost, their primary value to the
customer was informational. In theory, small bunches of bananas could be
wrapped and sent directly to your home from a particular plantation with
fewer intermediaries involved in warehousing and storage, and thus at
lower costs. You would place an order directly to Best Bananas in
Honduras for one bunch per week, except during the school holidays, and
they then would mail them out to you. To do that effectively, though,
would require network technology capable of a) finding a plantation you
like; b) getting the right bunch to you at the right time; c) shifting
to a cooperating planter if the first planters fruit was not yet
ripe; d) tracking the account payable for such a tiny buyer as yourself;
and, e) dealing with all the millions of ordinary exceptions and
screw-ups that any system as complex as this would entail.
The industrial age had no technology capable of doing that,
so it substituted the wholesale system for networked information. Orders
were aggregated at the local produce stand, sent to a wholesaler, who
aggregated them further, and relayed the combined request through
various shipping intermediaries to a farmers coop, which
distributed orders to various planters. Your personal "order"
was submerged in a sea of others; the system essentially ignored it.
Making their way back to you, the bananas followed a reverse chain of
links, sitting in warehouses as a way to buffer the incomplete consumer
information they should have had.
It may be a long while before bananas skip the industrial
value chain, but other foods, higher priced and not as bulky, already
can be bought this way. Food fanatics in cities anywhere can purchase
specialty coffees, or authentic maple syrup, or organic beef by linking
up with farmers directly and getting their goods right from the farm via
the post office, or FedEx networks, bypassing the wholesale and retail
intermediaries. When gourmets use web sites and direct-mail catalogs to
buy directly from growers, the traditional intermediaries are taken out
of the picture.
The banking industry was the first to name this creeping
displacement of intermediaries. They noticed, quite rightly, that as
information technology infiltrated the banking industry, and as the
industry was deregulated, nobody seemed to need banks anymoreat
least not banks as bureaucratic intermediaries. You could get easier
loans at Sears, higher interest from a mutual fund, and better service
at an ATM. Banking functions were being
"disintermediated" the bankers cried! For the typical
neighborhood bank this was especially true. The disintermediation of the
financial systems continues unabated; every week another bank branch
As more commercial activities shift toward knowledge and
information, the economy seems ripe for fatal disintermediation. Why
should such digital age products as music CDs and news reports travel
any other route except the short one that proceeds directly from the
artist or author to you, the listener? Recent success stories, such as
the case of Matt Drudge, give credence to a networks inclination
to bypass the middle guys. Drudge, a no-name Hollywood gossip reporter,
dispatched his insider scoops directly from a bedroom computer to a
growing list of web readers until he had a national readership and a
national brand. Some bands, both famous and unknown, are attempting the
same thing in music. The laborious tasks of stamping out disks, storing
them, trucking them across country, warehousing on pallets, and then
fighting for display space in a music store all seem to evaporate as
network technologies make the transmission of music to fans direct and
short. Big net, no middlemen, no fuss.
The potential of disintermediation, however, looms larger
than the actuality at the moment, and casts a large and frightening
shadow. Retailers, especially, are in a panic. If anyone can log on to
the web and comparison shop for the lowest-priced refrigerator directly
from the manufacturer, whats in it for the mall stores? If anyone
can order up a video from the studio, whats in it for the local
video shop? If anyone can get 5,000 sitcoms on demand, who needs NBC?
The wholesalers are worried silly, but artists and creators are
euphoric. The web promised (finally!) a way to beat the system of
limited shelf space that stymied the debut of new novels, new albums,
and new products in every type of store. With the web, there was
unlimited shelf space. There was success in store for everyone!
When Wired magazine began developing one of the very
first commercial web sites in 1993, the phrase "unlimited shelf
space" was often used by potential contributors. Closely linked to
this phrase was "bypassing the editor": the notion that
editors were superfluous intermediaries, and that writers and readers
didnt have to be subject to the frustrating and degrading
filtering of go-betweeners. The raw stuff would flow in its full length
and naked power directly from writer to reader. Our first prototypes
convinced us that that wasnt how the net worked. The web site we
launched and continue to build today (Wired Digital) is based on
a different premise: that in a network economy, intermediaries have
Technology encourages the proliferation of intermediates. Smaller
companies, in greater numbers, are able to find niches where niches
could not have existed before.
Everything about the web, especially the over 1 million web
sites currently in existence, suggests that the expectation that the
network economy favors disintermediation is exactly wrong. It is quite
the opposite. Network technologies do not eliminate intermediaries. They
spawn them. Networks are a cradle for intermediaries.
Everywhere networks go, intermediaries follow. The more
nodes, the more middlemen.
It is so cheap to complete a transaction from almost
anywhere, anytime, that tiny slivers of value, built upon microcosts of
transactions, can be surgically inserted into all manner of processes
and products. Because each microvalue sliver is so cheap, there is
economic room for multiple microvalue slivers where before there was
only room for one intermediary. As transaction costs plummet to the
nanopenny level, some little crumb of value can be profitably added to
more and more processes.
The combinatorial mathematics of networks also boost the
opportunities for intermediaries. By definition, every node on a network
is a node between other nodes. The more connections there are
between members in a net, the more intermediary nodes there can
be. Everything in a network is intermediating something else.
All nodes in a network are intermediaries.
Someday everyone in the world will have email, and when they
do, I dont want six billion emails a day as everyone shares
whats on their mind. Since half the world will probably have their
own businesses, and half of those will be start-ups, I will do
everything I can to insert intermediaries between my mailbox and their
mailsenders, to sort out, route, and filter my incoming mail. By the
same token when I go to email old Mohammed Jhang, someone whom I have
not met, who lives in Chinese Turkestan, to let him know about my latest
gene therapy cure for arthritis, Ill need an intermediary to find
him and then to reach past his blocking filters. I probably wont
get through so Ill need more intermediaries (An advertiser? A
lottery? A locating agent?) to lure him into the open, perhaps a
pigeon-racing club, or the cineplex where he gets his movies from, to
make him aware of my discovery. Sure, anyone can type "new gene
therapy cure for arthritis" and turn up 32,000 hits. But you need
intermediaries to vouch for their medical worthiness. You need
intermediaries to compare my price and the others.
The marketspace of the new economy can hold far more
intermediaries than the marketplace of the old could. This swelling bulk
of intermediaries becomes an exaggerated middle. As networks
proliferate, so do overlapping clusters of intersecting interests that
reside in the realm of the middle. In fact the hypermiddle is less a
size than a shape.
Technology has always influenced the size of companies. The
invention of the elevator made possible high-rise buildings, which
brought thousands of employees together into one tightly coupled
physical space. High-rise towers launched the golden era of the
centralized corporation. The advent of telephones on employee desks
allowed the centralized corporation to spawn branches in neighboring
cities and states, so that corporations grew in staff; at its peak in
1967 GM employed some 850,000 people in all of its factories and
Computers and networking technology initiated a shift in the
other direction. What took 8 people before might be done now with 7
using technology. Firms that relied heavily on these technologies could
reduce the number of employees. A company like Microsoft today employs a
relatively meager 20,000 people.
If firms got smaller with tiny doses of networking
technology, then the logical extrapolation dictated that with large
doses the firm should continue to reduce until it reached one employee.
Some statistics tend to confirm this drift. Counting the 14 million
self-employed, the 8.3 million independent contractors, and the 2.6
million temporarily employed in the United States, there are 25 million
Americans today working as a unit of one. If this trend continues for a
couple more decades, in the future everyone will be a free-agent working
for themselves, and our country will be a free-agent nation.
Network technology increases the size of the largest firms yet makes it
more possible to have smaller firms while also increasing the number of
But network power cuts both ways. Although networks empower
the solo practitioner, they also empower very large organizations. We
are just as likely to see the rise of the Godzilla-nation as the
free-agent nation. Big has not really been done yet. With the incredible
place-shifting power of communication technologies, and a
yet-to-be-tapped global market, the world will soon witness corporations
that will dwarf the size of the old GM. One can imagine a truly global
consultancy, such as Andersen Consultants or Ernst & Young, having a
staff of one million worldwide.
But the big will have a different kind of bigness.
In the space of networks, size is reckoned differently. The
new organization is flat, spread out laterally, diffuse, with nested
cores, and swollen in the middle. Companies will change shape more than
they will change size.
During the industrial era, size was polarized to extremes.
There was the "world," or the masses, and there was
"I." Industrialization emphasized the large-scale efficiencies
of mass production, which quickly led to mass consumption and mass
society. A drift to the large, if not the largest, coursed through the
society. If something was worth doing well, it was worth doing at the
scale of the world. Ambitions ran to the tallest skyscraper, the biggest
factory, the largest dam, the longest bridge. The technologies of
communication of that age also flexed the muscle of big. The printed
page and the radio signalas central to the industrial age as
anything made of ironinformed, educated, and mobilized hundreds of
millions from a single transmission source. The power of big was never
so nicely diagrammed as in the TV: a tiny spark amplified to reach
billions of people over thousands of miles at once, in unison.
The "I" on the other hand was fed by mass
advertising and the cult of the individual, which sprang up after the
Second World War. A fascination with psychoanalysis, with the ego, with
personal expression and self-esteem, culminated in the "Me
decades" starting in the 1970s. The first bits of the information
age fed this whetted appetite for further individualism. We got personal
computers amid personal trainers, personal advisers, and expectations of
Left behind by industrialization was the realm of the
middle. The middle was once where everyone lived and most things
happened. This size once flourished in geographical towns (with tens of
thousands), ordinary communities (with thousands) and neighborhoods
(with hundreds). Places embraced the middle very well.
But the vitality of places was weakened by a bifurcating
pressure to make things either huge for the masses or solo for the
personal. The logic of the modern was: it must appeal to everyone, or to
only me. Neither mass society nor the cult of the personal was equipped
to deal with the peculiar dynamics of the middle. There was little
economic or technological support for aiming an innovation at 5,000
people. Neither broadcast nor the personal chip, for example, really
knew how to do towns and neighborhoods.
The network economy encourages the middle space. It supplies
technology (which the industrial age could not) to nurture mid-sized
Technology for mass production will remain. Technology to
customize the personal will accelerate. But for the first time we have
technology naturally suited for a size smaller than mass and greater
than the self. We have a technology of net and web, stuffed with
Futurist Alvin Toffler says it best: "The era of mass
society is over." He ticks off the casualties: "No more mass
production. No more mass consumption. No more mass education. No more
mass democracy. No more weapons of mass destruction. No more mass
In its place: a world of demassified niches. Niche
production, niche consumption, niche diversion, niche education. Niche
world. Communities. Affinity groups. Clubs. Special Interest Groups.
Clans. Subcultures. Tribes. Cults. (There is nothing utopian about this
world.) Instead of the mass technology of broadcast TV, we now have
We see the problem of the unserved middle most clearly in
communication media. Say you wanted to talk to 10,000 people once a day.
Unless you wanted to speak to a group bounded by geographya small
town, or a subset of a small cityyoud be stymied. You can
broadcast to a million unknowns hoping you happen to catch some of the
10,000 you want, or you can slowly collect the names of individuals who
contact you, one by one, and transmit to them directly. Neither way is
elegant. Retailers call this the "hard middle," because it is
so hard to service a group of 10,000 customers who share a common
interest but not a common geography. Retailers crave the middle because
they have learned that you cant appeal to folks with a simple
naked exchange of money. You need other essentials of
marketplacesconversations, loitering, flirting, people-watching.
Before you can have commerce, you need a community, a middle number of
It takes a village to make a mall. Community precedes
The hard middle is a pervasive problem. We have tools to
access the ideas in one persons book: its index and table of
contents. We have tools to access the ideas of a library of millions of
books: its card catalog. But we dont have tools to access ideas in
the hard middle, the region of expertise in 10,000 scholars, or 1,000
books. Where do you go for a listing of key words, key subjects, and key
ideas for the complete literature about the U.S. Civil War?
Until recently, nowhere. Today, the symbol WWW immediately
pops into our mind. We see in the World Wide Web the promise of
creating a viable midlands. In this particular case the hyperlinking of
all documents could be filtered and categorized to generate an index to
Services and goods for previously ingnored community -- and town-sized
groups, also known as the hard middle, can make economic sense with
The electronic space encourages middle communities. Unlike
either broadcast or PC chips, a network fosters the energy that flows
from the friend of a friend to the friend of a friend. Network
architecture can find, cultivate, persuade, manage, and nourish
intermediate-sized audiences and communities focused on common
interests. Niche markets, in other words. Magazines, rooted in the
postal system network, have served niche markets for a century.
But the emerging broadband network offers many relationships the postal
network (and magazines) could not: spontaneous reply, fully symmetrical
bandwidth, true peerage communication, archives, filtering, community
Network logic supports the middle space in several ways.
First, the plunging costs of information make it possible to
find, then connect, two passions together far more efficiently than in
the past. Once connected, cheap transactions keep the connection
Second, symmetrical messaging, text, video, audio, 3D
spaces, archives, privacy controls, all enhance the once slim
attractions of a virtual community experience, keeping the community
Third, the ubiquity of e-money in the network means that
every niche has the ability to initiate an indigenous economy. The
knowledge that dog breeders used to swap among themselves can become
lucrative to the community as a whole when plugged into the network
Fourth, the border-collapsing nature of the network economy
means embryonic communities can theoretically draw upon a larger pool of
potential members: all 6 billion humans. The law of increasing returns
can feed a small interest into a mid-sized interest. Whereas once there
was a lone fanatic for every notion, now there is a devoted web site for
every fanatic notion; soon there can be 10,000 fellow enthusiasts for
The network economy has set into motion the power of hobby
tribes and informed peers. Amateurs, plugged into the net, discover
comets, find fossils, and track bird migrations better than pros. By
networking their interests and passing tips around, amateurs also
create software in languages so new that they are taught in no
classrooms. These self-organized communities, unleashed from their
obscurity by the net, are the new authorities.
Silent movie buffs and meteorite collectors are quickly
gathering on the net because the nets space coheres them into a
middle market, served at last by business and sales aimed directly at
them. Egyptologists or cancer patients can create a mid-sized agora
(neither insignificant nor huge) for ideas and knowledge. There was no
place in mass markets for the niche communities of ethnic tribes or
Klingon speakers, but the network economy constructs a space for
But mass broadcast TV and big print publishing are not going
away. The chief advantage of peerage networksthat information
flows in ripples through a web of equal nodesis also the chief
weakness of networks. Information can only advance by indirect osmosis,
passing along like gossip. The web becomes a thicket of obstacles
preventing simultaneous dissemination to all parts.
The net shifts from mass media to mess media.
On the new mess media, rumor, conspiracy, and paranoia run
rampant. These have always been the downsides of communities; network
midlands will also have to learn to deal with impenetrable webs and
paranoic sensibilities. Capitalizing on these disadvantages, broadcast
will thrive symbiotically within the network economy. Sometimes
real-time signals en masse are needed and wanted. Broadcasts
flyover will be used, or material will be directly pushed to users. The
web needs broadcast to focus attention, and broadcast needs the web to
Network technology expands all sizes. It enables the biggest
to become bigger and the smallest to become smaller. In the near future
we can expect to see institutions larger than they have ever been, and
smaller than they have ever been. For instance, a few banks will grow
monstrously large at the same time that other banks shrink to the size
of a smart card in a wallet and increase their numbers by millions. The
middle expands, too. That hard-to-reach territory that once was well
served by places is rejuvenated.
The space of network nodes and flows creates new social
organizations, new forms of companies, in oddball sizes, and in
unconventional arrangements. We are on the brink of entering a world
where almost any shape of business is possible.
The only side a network has is outside. Like a rapidly
spinning galaxy, the net creates an unrelenting force that sends
everything from the inside toward the outer edges. Since little is left
inside, the action is thrown to the perimeter. Rather than buck this
centrifugal force, companies should consider outsourcing chores to other
equally amorphous networked companies. The most powerful capitulation to
the nets outward spin is to outsource seemingly core activities.
For instance, some airline companies outsource the business of
air-freight hauling, even though the cargo is carried by their own
planes. There are 1,001 reasons why core outsourcing cant be done,
but 999 of them ignore the centripetal force of the network economy.
Prepare for flash crowds. Electronic spaces unhinge a
crowd of visitors: They can appear in a flash and then leave in a flash.
During the chess match between Deep Blue and Gary Kasparov, the IBM web
site welcomed 5 million visitors. When the match was over the site was
empty. On the eve of the 1996 U.S. elections, the CNN web site
experienced 50 million attempts to log on. The next day, the crowd was
gone. One day a flash crowd is pounding at the doors, the next day they
have vanished. The mass audience has transformed itself into a wave that
swishes around from one hot spot to another. But the nature of spaces is
that in order to accommodate a flash crowd when they do come, you have
to be ready, tooled up.