By PHILIP EVANS
From Boston Consulting Group
After a 10-year progression through curiosity, denial, euphoria and betrayal, the business community has embraced the Web as a platform for marketing, supply chain management, and internal coordination. Now, a decade later, Web 2.0 is all the rage. By enabling new methods of production, consumption, collaboration and experimentation, Web 2.0 could shift sources of local and global competitive advantage.
Two principles define Web 2.0. First, loose modularity, which describes an architecture of small tasks "loosely joined" -- for example, the "mash-up" in which one Web site relies on data (typically supplied free of charge by others) to create rich hybrid offerings at minimal cost. And second, the empowerment of the periphery through a trusting community that shares some intellectual property and within which reputation serves as a motivator and basis of trust.
These two principles make possible the distributed production of "information goods" through the cheap recombination of prior contributions. Users can become producers and are often motivated to give back to the community from which they draw. Economic and non-economic motivations are intermingled. Collaboration happens with little formal coordination. Initiative originates at the edge of the network. Markets and non-market communities substitute for traditional, hierarchical organizations.
These principles are not new. What is recent is their manifest scalability, made possible by technology.
More than 220 million members of eBay trading in excess of $50 billion per year -- a higher gross merchandise volume than that of Lowe's. One thousand people writing the 30 million lines of Linux code, competing with Microsoft's $10 billion investment in Windows Vista. The point is not that Lowe's or Microsoft is thereby rendered obsolete, or that the phenomenon is universal, but rather that there is something new and very vigorous in the gene pool.
This gene isn't only for the pining and pubescent. Consider Toyota. Toyota and its many suppliers manage their collaborative relationship on the basis of long-term, open-ended and largely implicit contracts. Learning about process improvement is treated as common "intellectual capital," to be shared among peers across the supply chain. Reputation in the eyes of the entire supply chain underlies the social capital not just of companies but of individual engineers and teams, a trusting community. And work is broken into small, tight and very precise cycles of hypothesize-test-measure, conducted in parallel by independent teams; results are posted in a terse, standardized format and broadcast to all so that others can build on them: loose modularity.
This is Web 2.0 in every regard except the Toyota supply chain relies on technology for one thing only: cheap, universal peer-to-peer connectivity. Until very recently that meant distributing paper reports and using pagers.
Toyota's cross-corporate norms, discipline, and shared tacit knowledge took decades to build, limiting both its scalability and its replicability by others. But Toyota stands as proof that with a minimum of cheap, pervasive connectivity, Web 2.0 practices can be applied, even without fancy technology. Add technology, and an entirely new vista opens up in which organizations interact through a combination of Web 2.0 principles, Toyota-like work norms, open-ended alliances, and cross-enterprise collaboration technologies.
Or consider the domain of internal corporate organization. How many tasks can be rethought as the sum of small, loosely joined contributions? How much effort can be motivated and shaped by the collective approbation of a corporate community, even risking some dilution of accountability? How far can reputation be substituted for reciprocity as the primary basis of trust? Where can a community of individuals pooling problems and solutions outperform a handful of executives controlling priorities and resources?
Not everywhere, obviously: hierarchy has its purposes. But quite extensively, especially when organizations are globally scattered, yet the need for coordination is great.
Or consider the structure of an entire industry. The handset is becoming the most personal and pervasive platform for computing, communication, and entertainment. But unlike the computer industry's open and largely interoperable architecture of hardware, software and services, cellular telephony is highly integrated: Handsets are often sold by carriers locked to work on a single network; software applications are device specific; functionality, bookmarks and content services are largely preset. By keeping their customers within what is often called a "walled garden," carriers, particularly in the United States, hope to protect their revenue streams. The relatively slow pace of industry innovation is a direct consequence.
Attackers are applying Web 2.0 principles. Skype is a simple peer-to-peer protocol: small pieces of code, loosely joined. Its 300 million users can make free global phone calls over the Internet. Then there is Fon, a peer-to-peer global Wi-Fi network of 120,000 personal wireless access points. Fon is both a community (in which people share) and a market (in which people buy and sell access). More significantly, Google, EarthLink and many municipalities worldwide are investing in free community Wi-Fi networks; and iPass and Boingo are creating global, paying Wi-Fi networks. Combining Skype with Wi-Fi (and a Bluetooth earpiece), consumers can bypass the cell carrier entirely and get mobile voice from a laptop.
In Asia, 80 percent of the handsets today are unlocked and sold independently of a carrier. India is already a larger cell-phone market than the United States. Some of the world's best programmers are there, together with hundreds of millions of price-sensitive customers. In China, dozens of entrepreneurial hardware companies are trying to break out of private-label assembly.
If and when Mobile 2.0 happens, it will surely happen in Asia. The cellular Silicon Valleys will be in Bangalore and Guangzhou.
Loose modularity is a conscious, strategic choice, very different from the tightly nested hierarchy of tasks and roles that defines conventional business; trusting community is also a strategic choice, very different from the power relations that define traditional organizations, supply chains and marketing relationships.
After a decade of corporate rationalization and cost cutting, these principles offer a path to the organic growth and innovation that have eluded most incumbents. Like the fruit of the tree of knowledge in another, more poetic, walled garden, it is there for the taking. If incumbents fail to pluck it, newer and nimbler players will. The ecology that is more innovative will become the ecology that is more competitive, and Web 2.0 will move from opportunity to threat. Technologies that today look cute, tomorrow will prove lethal. There is a python in the garden.
Philip Evans is a senior partner in the Boston office of The Boston Consulting Group.
