On Structural Change, Part 1

On Structural Change and the Broadband Economy

Close to a full decade into the new millennium, it's become more and more apparent that things will never be the same as they used to be. Change is on everyone's lips these days, especially among our presidential candidates in early 2008. Ever since the early days of the Internet nearly 15 years ago, the pace of technology change has crept up until it seems a non-stop constant now. Broadband internet drives much of that change: with its nearly infinite capacity of information and its near zero cost of distribution, broadband grinds away at the old way of doing things. And mobile broadband enables services heretofore impossible to offer.

As the "First Mile" gets extended to more and more premises, the sinking costs of access and burgeoning capacity and utility of broadband guarantee continued rapid change, even promising a world where change is the new norm. And as the "March to Mobility" progresses, we become less satisfied with being tied to a wired connection, so expect the differences between "fixed" and "mobile" broadband to gradually diminish, as mobile catches up to fixed. But also expect new differences to appear, as fiber becomes the new norm of broadband, with the potential for Gigabit speeds that dwarf the Megabit speed limits of wireless.

But cultural change acts as a drag on technological change, like a parachute dragged in the water behind a sail boat, known as a sea anchor to nautical types. As humans we struggle to accept the inevitable nature of change and grasp at how to deal with in manageable bits. Even as we do, we also cling to the hope that while change may be inevitable, it need not be so disruptive. We grow to miss the old ways of doing things, even as we become excited as old problems give way to new ones. The more things change, we begin to become more discriminating, even challenging whether change is in fact what we want.

As our society grapples with the increasing pace of change and tries to make sense of it for our communal and individual lives, the very nature of change is morphing. The structures and underpinnings of our economic lives are shifting. This white paper explores the structural changes caused by the Internet and suggests that a paradigm shift is underway - a change in how we look at things provides leaders with a new way to cope with change and help move those they lead on to more effective adaptation. New ways of using technology can positively impact all of our lives and communities. And as the world evolves, the measure of humans and communities will become how well we adapt to change as much as what changes we choose to make.

"Structural" Change

What do we mean here by "structural change?" When the rules for doing business change, the structures that have supported the economy come under challenge and innovators begin to compete in different ways. The nature of competition changes and slowly (or in some cases, suddenly) those who do not or cannot adapt become less competitive and their influence wanes. We see long-established companies that we once considered the bedrocks of our economic system stumble as they try to adapt to the changes brought on by the ever-expanding and robust Internet. And we see some icons fall out of view altogether, with more to come. Consider just these two examples - Encyclopedia Britannica and AT&T - venerable companies with remarkably different outcomes in the past few years: one all but vanished and one that underwent dramatic reinvention and resurgence, both in the space of but a few years.

* Reference Information: Encyclopedia Britannica was one of the first to go, as the Internet with its fluid information management capabilities made irrelevant this century's old information publication. Microsoft, the giant killer, put the printed word onto proprietary CDs and software when it launched Encarta nearly 10 years ago.

In the late 1990s, Microsoft bought Collier's Encyclopedia and New Merit Scholar's Encyclopedia from Macmillan and incorporated them into Encarta. Thus the current Microsoft Encarta can be considered the successor of the Funk and Wagnalls, Collier, and New Merit Scholar encyclopedias. None of these formerly successful encyclopedias are still in print, being unable to adapt to the new market dynamics of electronic encyclopedias.Wikipedia on Encarta

But even that move by Microsoft was rather quickly supplanted in the early years of the new century by the open-source, web-based emergent phenomenon, www.Wikipedia.com. Neither hard copy references (annual updates, anyone?) or software releases have been able to compete with Wiki-based software and open-source content contribution that puts the world’s information at your fingertips, updated in real time (68K+ entries on Encarta, 2.2M+ on Wikipedia). Visit any library and notice the banks of computers that have replaced the old card catalogues. Score one for the Internet, which has made traditional competition in reference information irrelevant.

* Long-Distance Telecommunications: Long-Distance is nothing like it was a generation ago, when it was a high-priced service - it barely exists today. Score one for fiber optics whose nearly infinite capacity of bandwidth drove long-distance prices to the floor, to the advance of cellular phones, whose mobility has become a requirement for modern communication, spurred on by the national calling plans that remove distance from the pricing equation, and to Voice over IP (VOIP), which incorporates long-distance as part of voice telephone service. The giant telecom monopoly AT&T enjoyed near exclusivity in the lucrative long-distance business, but then underwent a break up ordered by Judge Green in 1984, a monopoly in need of reform.

So far was the fall that a couple of decades later, SBC, one of the most healthy of the post break-up "Baby Bells," leveraged technology and its own business savvy to swallow not only its old parent AT&T, renaming itself after the acquisition was completed, but also several of the other Baby Bells. Having put much of the old company back together again, but as a largely deregulated telecommunications powerhouse this time, AT&T now relies more on Internet service revenues than long-distance service revenues.

How does the Internet achieve such a dominant influence in order to manhandle such business giants? And which industry or company is next on the hit list?

Part 2, coming up ...