In a groundbreaking article in Wired (5th
September, 1997) Kevin Kelly described the Twelve Principles of the Network Economy.
According to Kelly, the emerging new economy represents a tectonic
upheaval in our commonwealth, a social shift that reorders our lives
more than mere hardware or software ever can. It has its own distinct
opportunities and its own new rules. Those who play by the new rules
will prosper; those who ignore them will not.
Kelly argues the new rules governing the global
restructuring revolve around 4 axes:
- First, wealth in this new regime flows
directly from innovation, not optimization; that is, wealth is
not gained by perfecting the known, but by imperfectly seizing the
- Second, the ideal environment for
cultivating the unknown is to nurture the supreme agility and
nimbleness of networks.
- Third, the domestication of the
unknown inevitably means abandoning the highly successful known -
undoing the perfected.
- And last, in the thickening web of the
Network Economy, the cycle of "find, nurture, destroy" happens
faster and more intensely than ever before.
The following 12 principles
of the Network (New) Economy
were supposed to provide
New Rules for the Internet Age:
of Connection - Embrace the dumb power: Of the collapsing
microcosm of chips and the exploding telecosm of connections
Law of Plentitude - More gives more: Mathematicians have
proven that the sum of a network increases as the square of the
number of members. In other words, as the number of nodes in a
network increases arithmetically, the value of the network increases
Law of Exponential Value - Success is nonlinear: During its
first 10 years, Microsoft's profits were negligible. Its profits
rose above the background noise only around 1985. But once they
began to rise, they exploded.
Law of Tipping Points - Significance precedes momentum: In
epidemiology, the point at which a disease has infected enough hosts
that the infection moves from local illness to raging epidemic can
be thought of as the tipping point. The contagion's momentum has
tipped from pushing uphill against all odds to rolling downhill with
all odds behind it. In biology, the tipping points of fatal diseases
are fairly high, but in technology, they seem to trigger at much
lower percentages of victims or members.
Law of Increasing Returns - Make virtuous circles: Value
explodes with membership, and the value explosion sucks in more
members, compounding the result. An old saying puts it more
succinctly: Them that's got shall get.
Law of Inverse Pricing - Anticipate the cheap: Through most
of the industrial age, consumers experienced slight improvements in
quality for slight increases in price. But the arrival of the
microprocessor flipped the price equation. In the information age,
consumers quickly came to count on drastically superior quality for
less price over time. The price and quality curves diverge so
dramatically that it sometimes seems as if the better something is,
the cheaper it will cost.
Law of Generosity - Follow the free: Now, giving away the
store for free is an applauded, level-headed strategy that banks on
the network's new rules. Because compounding network knowledge
inverts prices, the marginal cost of an additional copy (intangible
or tangible) is near zero. Because value appreciates in proportion
to abundance, a flood of copies increases the value of all the
copies. Because the more value the copies accrue, the more desirable
they become, the spread of the product becomes self-fulfilling. Once
the product's worth and indispensability is established, the company
sells auxiliary services or upgrades, enabling it to continue its
generosity and maintaining this marvelous circle.
Law of the Allegiance - Feed the web first: The
distinguishing characteristic of networks is that they have no clear
center and no clear outer boundaries. The vital distinction between
the self (us) and the nonself (them) - once exemplified by the
allegiance of the industrial-era organization man - becomes less
meaningful in a Network Economy. The only "inside" now is whether
you are on the network or off.
Law of Devolution - Let go at the top: The biological nature
of this era means that the sudden disintegration of established
domains will be as certain as the sudden appearance of the new. In
the Network Economy, the ability to relinquish a product or
occupation or industry at its peak will be priceless.
Law of Displacement - The net wins: The question "How big
will online commerce be?" will have diminishing relevance, because
all commerce is jumping onto the Internet.
Law of Churn - Seek sustainable disequilibrium: The Network
Economy moves from change to churn. Change, even in its toxic form,
is rapid difference. Churn, on the other hand, is more like the
Hindu god Shiva, a creative force of destruction and genesis. Churn
topples the incumbent and creates a platform ideal for more
innovation and birth. It is "compounded rebirth." And this genesis
hovers on the edge of chaos.
Law of Inefficiencies - Don't solve problems: In the Network
Economy, productivity is not our bottleneck. Our ability to solve
our social and economic problems will be limited primarily by our
lack of imagination in seizing opportunities, rather than trying to
optimize solutions. In the words of Peter Drucker, as echoed
recently by George Gilder, "Don't solve problems, seek
T I P : Here you can discuss and learn a lot more about the Network Economy and Kelley's 12 Principles.
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