What is the Network Economy

Mr. Jones is a successful entrepreneur. He believes in the power of scarcity. He believes that whatever he produces, if it is unique and has a high utility, it would earn him a handsome revenue as the demand would hardly ever go down. He marvels at the wonders of the industrial revolution and feels his break-even point, although distant, would come soon because he has priced his products at a comfortably high price. Since he is the only producer in the market, he believes he can enjoy this singular privilege of high pricing. He has already started succession planning, keeping a keen eye on his nephew working under him as the regional manager in Wales. What gives him immense satisfaction is that his product is by far unhindered by the cut-throat competition faced by other products in other segments. Hence, he concludes; reap the rewards while the sunshine of open roads still smiles on him.
While the above scenario would ring true somewhere in the 19th century, it miserably fails in today’s context and age. Today’s Network economy has indeed turned these well sculpted notions on their heads. What is this Network Economy, the attentive reader might ask? The answer is quite simple and would be obvious to the reader, once he or she finishes reading the rest of this article. It all started in the year 1969 when the advent of knowledge workers marked the dawn of an era where information assimilation and dissemination would play a major role in the economy. With the evolution of computers and the internet, the flow of information became easier and with that the power of uniqueness was lost. Communication has become the norm in today’s world. The laws that govern today’s world economy, without us even realising it, are actually very simple and forthright.
To begin with, do not under-estimate the dumb power of the silicon chip. Computers by themselves are dumb objects. If you don’t connect them to the network, any information that you might have with you is useless. And once you do connect them to a network you transform the data with you into information that adds to the network’s database. Moving on, stop thinking like Mr. Jones. Scarcity is not the order of the day. To cite a pertinent example, a single fax machine is worth nothing. Neither are 5 or 6 fax machines. 200 or 300 fax machines spread across continents, each communicating with the other and forming a large number of combinations of connections is of some use. The more the network grows, the more does the utility of the product plugged into it. Hence, with a decrease in scarcity, utility increases; this directly contradicts the law of scarcity of the industrial revolution. Moreover, success is nonlinear in today’s world. A case in point is the success of the internet, a dormant entity till the 1990s. Hence do not predict the success of any invention or innovation in the network economy to be a linear curve. It might break even, even before the proverbial ‘tipping point’ has been reached. Besides, if I would have been a well wisher of Mr. Jones, I would have asked his great grandsons to make virtuous circles. Linked In, a major networking site, would have been my advice to his kith and kin. This will guarantee his business visibility in the corporate world and a unique podium to communicate ideas with likeminded souls, which ultimately will benefit the business.
My final advice to Mr. Jones, of this generation, would be to let go at the top. Churn and not change is what defines today’s economy. ‘Find, nurture and destroy’ is what he should do. He should not be afraid of exploring the unknown and leave the known. The ability to relinquish something at the peak of its success and setting out on a venture to discover something totally unique is what would define the way forward for his business.
In fact, as management students of the 21st century, I believe this holds true for us all. Our minds will at first be bound by old rules of economic growth and productivity. Listening to the network can release them. In the Network Economy, as Peter Drucker so coherently puts it, don't solve problems, seek opportunities.