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From the Archives: The Wired Society

8.2.19


The Internet’s applications, the fortunes made (Amazon, Facebook, Google) and lost (your favorite victim, here, from the dot-com bust at the beginning of the millennium), and now the rising threats to privacy, the integrity of the democratic process, and even the survival of fact-based discourse—none of these impacts and issues are new. In 1999, Harvard Magazine asked a panel of scholars, finance experts, an entrepreneur, and a journalist to consider the then-emerging technologies and their uses (and misuses), and to allow themselves to speculate about the future. Some of what they had to say has of course become outmoded, but its value as near-history remains. Some of their insights were prescient. And the discussion itself is a reminder that society owes itself perspective on, rather than just passive resignation to, the changes that a momentous new technology can bring. ~The Editors

 

What accounts for the explosive growth of the Internet and related technologies? Are they merely a convenience, or do they represent something fundamentally new in the conduct of business, the conditions of work, and the context of our social interactions? Can we discern anything about their impact and their future from earlier industrial revolutions? Will they empower consumers or further concentrate commercial enterprise? And how will society cope with abuse of the new technologies and the implications for personal privacy?

Harvard Magazine asked six observers of and participants in the business world to discuss these and related questions on February 8 in Morgan Hall on the Harvard Business School campus. They were:


Kim B. Clark ’74, Ph.D. ’78, dean of the Faculty of Business Administration and Harry E. Figgie Jr. professor of business administration;

Shikhar Ghosh, M.B.A. ’80, cofounder and chairman of Open Market Inc. and of a recently established company, iBelong Networks Inc., which is creating an Internet portal for nonprofit organizations;

Robert F. Higgins ’68, M.B.A. ’70, managing general partner of Highland Capital Partners and president of the New England Venture Capital Association;

Nancy F. Koehn, M.P.P. ’83, Ph.D. ’90, associate professor of business administration, focusing on business history;

William A. Sahlman, M.B.A. ’75, Ph.D. ’82, Dimitri V. D’Arbeloff-MBA Class of 1955 professor of business administration, focusing on entrepreneurship and venture financing; and

David Warsh ’66, economics columnist for the Boston Globe and author of People, Ideas, and Things: The New Generation and the Old in Economics, forthcoming from Harvard University Press.

Reflecting the newness of the phenomena and the speed at which they are spreading, the participants struggled to find a vocabulary adequate to describe events they consider “tectonic” in scope—perhaps as formative, in economic terms, as the cosmologists’ “Big Bang.” The discussion reflects their excitement—and, in certain respects, wariness—about changes transforming the marketplace, households, and the workforce. Edited excerpts of the conversation, as moderated by Harvard Magazine, follow.

Moderator: What conditions have led to the proliferation of new information, communications, and Internet technologies and businesses?

Sahlman: I think there’s always a series of things that occur in an economy around information—the demand for information, the uses of information. Periodically, almost always as the result of changes in technology throughout the economy, you get a dramatic shift in capabilities that make things feasible that were desirable, but infeasible, before. What we’ve seen in the past four or five years is the confluence of all of those technological shifts—hardware, software, and other aspects of communications—enabling people to do things they wanted to do before.

Warsh: That seems exactly right to me, except that the period goes back further, to the time of the Second World War. The technologies that we’re seeing deployed now date from then, even though nobody had the slightest idea even 15 years ago that some might be in use today. It’s remarkable to think that the personal computer was novel in 1980. Now there’s a whole generation of people who take it for granted, who didn’t know it was impossible before that.

Ghosh: A slightly different perspective is that the Internet really picks up the last mile. Before this, technology always stopped at the company. Take financial services: 75 percent of what a bank does is done outside of the bank. Any institution has been able to get to any transaction—that has been around for a while. What the Internet did was connect all of that to the consumer. And that caused a whole set of changes, even though the build-up to it has been going on for a couple of decades.

Clark: I think what we’re seeing today is the immediate manifestation of much deeper, much longer-term forces that have been at work for many, many years. It’s easy to get caught up in all the new and flashy things that are going on. But underneath, there are some very profound changes taking place.

If you go back to the Second World War, when John Von Neumann first sat down to conceptualize the computer and give it a structure, so it became more than just a bunch of vacuum tubes, he laid out an architecture which I would describe as “modular.” Modularity is a feature of design that has played out over and over again. In some respects—particularly in the Internet—we’re seeing the incredible power of that concept. It’s not technology in the sense of Moore’s Law, which predicts ever-increasing density on semiconductor chips, or even of the increasing communications bandwidth that comes from learning how to split signals apart. It really is a more fundamental characteristic of these technologies that allows things like the Internet to exist—where you essentially take an incredibly complex artifact and decompose it in ways that allow each of the individual pieces not only to be designed independently, but then to come back together and work seamlessly as a whole. That technology is what we see being played out, and it is very, very powerful.

The difference between taking a complex system like the Internet, and imagining that system having to be designed and operated as a whole—the differences between that kind of integrated or interconnected system and the existing modular, decentralized system in terms of value, speed, and flexibility are not 50 percent or 100 percent, or even an order of magnitude. They’re two or three orders of magnitude. We’re looking at something that is just beginning to be felt. This is like a tectonic plate shifting on the economy.

 The analogy I use is electricity. You’ve got to go way back in history to find something that was equally profound in its impact, not just on business but on society. Electricity is systemic. It ended up affecting everything in a profound way. That’s what we’re looking at here.

Higgins: It’s interesting to ask why this is happening now and why it is happening here in the United States, in places like San Francisco and Boston. It’s a remarkable combination of things. The Internet has been around for quite a while. Ten years ago, I would have thought that changes of this magnitude would require so much capital that they would occur only in very large corporations. But none of it has happened there. Cisco Systems happened literally in a garage next to Stanford; a couple of academics at Carnegie-Mellon started Lycos. That’s probably true of most Internet companies in some way.

What’s remarkable is that it happened with such small amounts of capital and is being done by entrepreneurs. I think the key elements of these economic shifts are as much cultural as they are technological. A new generation is showing amazing creativity and energy as it exploits this technology. Cellular telephone technology was around for a long while before it was exploited. And the Internet was around for quite a while before it was exploited. We often forget how the federal government funded the early years of these technologies—whether it’s the National Institutes of Health in biotechnology, or DARPA [the Defense Advanced Research Projects Agency] for the Internet. But the roots go back to the government, to universities, and then to the combination of entrepreneurs and venture capitalists.

The other thing that’s truly remarkable is that this is an American activity largely run by non-Americans. If you look at the entrepreneurs who run these companies, a high percentage were not only born, but educated, outside the United States. And they’ve come here to allow it to happen. Again, I think that’s as much cultural as technological.

Koehn: From a historian’s perspective, I think we are seeing a critical inflection point in the history of capitalism. It’s a defining moment. The things driving that—technologically, culturally, socially, politically—have been bubbling under the surface, pushing up the tectonic plates for some time. Like the other panelists, I would date the beginnings of that to the end of the Second World War.

But the point today is that these factors have burst to the surface in absolutely profound ways, technological and economic. They clearly are affecting the structure of business, the structure of capital markets. If history is any indication, they will affect the social contract. That’s the next chapter of the information revolution. We’re in about chapter two, maybe chapter three, of what is at least a six-chapter story. The effects are quite broad, socially, politically, culturally, even regionally and geographically. Look what’s happened to the balance of power and activity and capital in this country.

Higgins: People have been sucked into places like Seattle.

Koehn: Right. Sucked into Seattle, sucked into Silicon Valley. As in Britain in the first industrial revolution, a whole range of people are coming to Silicon Valley or to Boston’s Route 128 to figure out, “How can we light those sparks of capitalism to create the kind of economic possibilities that we now see before us in the information revolution?” It’s clearly a Schumpeterian moment, in which gales of creative destruction are whirling through our world.

In addition to the political issues and governmental role that Bob mentioned, we’re living in a moment when the world, for technological and other reasons, is much, much more interconnected. The world’s people have been trading with each other and talking to each other for at least a millennium. That’s not new. But what is new is the speed and tightness of those connections. Some of that’s technology—Kim can talk to alumni all over the world in a video conference—but some of it is also political. The world order is changing for a variety of reasons. The most prominent example of that is the fall of the Berlin Wall and the opening up of the former Soviet economy to much more market-driven forces. So the information revolution will play itself out faster, and with higher stakes, than have other critical inflection points in the history of capitalism.

 

Markets in Overdrive

Ghosh: One thing that has perplexed me about the way this all has played has been the financial markets. Not the venture capitalists, but the public markets back in 1994 and 1995 when there was no Internet business. All the companies in this business then had no pretense of a business model, yet they could go out and raise huge amounts of capital with no prospect of ever making money. When Open Market went public in May 1996, we had revenues of $2 million, and our market capitalization was $1.2 billion. We went public at $18 per share and the stock opened at $42. There was nothing in what we said, nothing in any of the offering details that would suggest any of that was valid. I could not understand why that happened, why the entire institutional investment community abandoned all pretense of rationality.

Sahlman: It really is a transference from what might occur at some distant point in the future back to the present. And if you try to understand the factors that might cause that to happen, you can, under a certain set of circumstances, imagine it making sense. But, for the most part, it doesn’t.

Ghosh: It’s also the willingness of the financial analysts to assume the best. And because all the rules are changing, the best is a huge number.

Koehn: If we went back and tried to reconstruct financial market data for another moment of great change—one of our colleagues, Peter Tufano [’79, M.B.A. ’84, Ph.D. ’89, professor of business administration], has done this—another moment when technology created sweeping transitions, we’d find much of the same kind of chaos and turbulence in those markets. We see it in the way that J.P. Morgan, Jay Gould, and other financiers—some of them the venture capitalists of the second industrial revolution—were trying to place bets on the future of late nineteenth-century technologies, including electricity and telephony, which were then cutting-edge, high-tech industries.

Higgins: We had a glimpse of the financial markets’ willingness to bet on technology in the early 1980s. Then, it was biotechnology. We still have not seen enormous profits from that industry, but millions of Americans are alive now because of the bet Wall Street made on those technologies. Today, in addition to Amgen and Genentech, there are dozens of other very successful companies. So there was a taste of that experience in the mind of Wall Street when the Internet came along and, as Shikhar said, even before the business models were clear. The early bets on biotechnology companies were first based on the quality of the doctoral degrees earned, then on the promise of the scientific ideas, and, only recently, on products and on actual human, clinical trials. The same thing is true with the Internet. Initially, it was based on the promise. And already at Internet speed, Wall Street’s demand for sound business models has emerged. We can see it happening in the financial pages by the day, or on CNN by the hour, as companies are required to show that they actually will produce a profit long-term.

 

The New Rules

Ghosh: The flip side of that is also true, which is that the companies that did follow more responsible policies failed. Take Netscape versus Spyglass, or CompuServe or Prodigy versus America Online. The start-ups backed by really powerful, large, responsible companies almost all failed.

Clark: A very interesting aspect of this, which Bob just alluded to, is that the financial markets and the financial system are themselves affected by these technologies in profound ways—in fact, being transformed by these technologies, the speed with which things operate, the ability to create whole new conduits of finance by creating whole new instruments that didn’t exist before. That has dramatically shifted the nature of the capital markets. The flows in these markets today are so large that there are now players out there willing to make these kinds of bets on investments and companies because the whole calculus that people are bringing to bear has shifted dramatically.

Shikhar mentioned the established firms. This is not a new phenomenon. If you go back 150 years, this pattern shows up over and over again. These kinds of changes create opportunity for new business models, whole new conceptions of how you actually do business. People who are locked into the old model, who behave “responsibly” within the framework of the way we have always done this—they basically don’t get it.

Here’s a modern example. Back in the mid 1980s, a workstation company called Apollo was the first to start thinking about how you create a network, and then to hook a bunch of workstations together in a network. Well, they came up against Sun Microsystems. At the time, Apollo looked like the dominant player and Sun was just a little upstart. And Apollo played by the rules. Entrepreneurs started it, and then brought in a “professional manager” with a “big company” mindset, who proceeded to basically run the company in a very responsible fashion. Sun was run by a bunch of crazy people—crazy viewed from that “responsible” perspective—who went out and amassed a huge cash war chest, and proceeded to spend every nickel in funding its growth, what we now think of as hyperaccelerated growth. And they just blew Apollo out of the water.

So Apollo sold themselves to Hewlett-Packard at the end of the ‘80s for about what they were valued at when their initial public offering came out early in the decade. Sun has gone on to become a multibillion-dollar company. That’s what you’re seeing in the business models out there now—a completely different conceptualization of how you make money.

 

The Shape of the Revolution

Moderator: We’ve been talking about the speed with which this information revolution is taking place. These technologies are now available to people all over the place at relatively little cost. Nancy Koehn said the revolution was in its early innings, and we have heard about the risks of playing by the rules when the rules change. How does this change compare to earlier business revolutions? What should we expect in terms of the rate and pace of change? How far along is it?

Koehn: I would compare this set of changes explicitly to the first industrial revolution in Britain in the mid eighteenth century, when new technologies like steam power and spinning innovations, which seem quaint and antiquated today, created an extraordinarily dynamic regional economy in the Midlands of England—an eighteenth-century Silicon Valley—to which people like Francis Cabot Lowell came to learn how they could replicate it. They broke a bunch of rules, including rules the British government had put in place to protect its important and lucrative technologies. I would compare what is happening today explicitly to those moments.

I would compare it even more to a moment that’s less familiar to many U.S. students. That’s the end of the nineteenth century when, as Kim said, electricity, the telegraph, railroads, steel processing, chemicals, and mass-manufacturing techniques really reconfigured the world, not just in Pittsburgh and Chicago and New York, not just in the United States, but in other countries as well, in Europe and Asia.

In each of those progressive moments, and now the information revolution, the speed has increased, the financial stakes have increased, the breadth and interconnectedness of effects have increased, and their geographical reach has increased.

When John D. Rockefeller died in 1937, he was worth about 1.5 percent of American GNP. But Bill Gates [‘77] and other entrepreneurs, and other companies of the information revolution, will raise those stakes in real terms yet again.

Those past moments of great turbulence are illustrative. We can be sure that this phenomenon is not just confined to business and the capital markets. It has affected consumers and households very significantly, and workers of all kinds—in high-tech businesses and much more traditional industries. It has also affected individuals’ ideas about what’s important: there are very important psychological, cultural, and moral effects that follow from swift, overarching change.

Higgins: To try a different time dimension, I think we may be one or two hours after the Big Bang. We may be just starting to write the prologue of what this information revolution means. And, judging just by the entrepreneurs and the proliferation of ideas coming into our office, one venture capital firm, I think we are still getting ready to begin to understand how to take advantage of this technology.

Ghosh: In 1893, in the middle of the second industrial revolution, a news syndicate—as a prelude to the Columbian Exposition in Chicago—invited 74 experts to describe what they thought the impact of all the changes would be. Some of the pieces were recently republished in a book called Today Then. It’s a fascinating book because most of the time they’ve got the technology right, and the implication of the technology completely wrong. One writer described commuter airlines, saying people will fly between cities. His concept was that you have wires strung between cities with balloons and horses pulling them along. This conception of the way commuter airlines would develop missed the types of companies that had the skills to create airlines, and limited the potential scope of air travel. In doing so, the writer got the idea right, but missed the business and social implications.

We’re at the same stage. We’re trying to divine what’s going to happen, and we’re most likely going to be wrong.

Koehn: This is where the Internet is now. We know it’s important, but what’s it going to look like? We don’t know what its ultimate implications are.

Sahlman: I would take a movie model of what’s going on, Jurassic Park. What is interesting about this technology and the other factors—the venture capital market, or the cultural perception of entrepreneurs—is that they’re heroes, as opposed to being considered robber barons. We live in an age in which the force field has been turned off, and the raptors are the entrepreneurs. Take that set of entry barriers and brand names, all the things that people have invested in from the late 1890s to the present—stores like Bloomingdale’s, and physical assets like Barnes & Noble—all of a sudden the force field goes off, you have the democratization of technology, and those assets are vulnerable. For a small amount of money, anyone can enter a business that previously would have required millions and millions of dollars, and they are creating chaos—total, complete, utter economic and political and social chaos. And to imagine that we can figure out what the ultimate implications are is like trying to figure out what the implications were of cloning fragments of dinosaur DNA. It just doesn’t work that way. There’s a frog in there somewhere, as they say.

Moderator: You mentioned some vulnerable businesses that have obvious physical assets, such as department stores. Even if we don’t know how the changes ultimately play out, who is already feeling the shock waves directly?

Higgins: Wall Street is a great example. The percent of individuals trading over the Internet has changed dramatically. If you look at the investment bankers who pioneered public offerings for the new information technology companies, several of them have become entrepreneurs again. Today’s Wall Street Journal mentions that Bill Hambrecht, the founder of Hambrecht & Quist, is creating a Dutch-auction system for IPOs over the Internet. Sandy Robertson, the founder of Robertson Stephens, is involved in a new entity called E-Offering. Some of the fundamental assumptions about Wall Street—for example, the margins on initial public offerings and how public offerings are distributed—are being challenged. Heaven forbid, there is even talk of replacing venture capital by doing private placements through the Internet. It’s a fundamental change in the way Wall Street raises capital. The entire industry is pausing right now, watching. This is becoming a major topic for the Securities and Exchange Commission.

Ghosh: A different way to ask the question would be, “What industry will not be affected?” I’d have to think really hard to come up with one.

Warsh: You’d begin by looking for fat profit margins someplace that could survive, because the thing about the Internet is that it really is such a brutally efficient mechanism. All these niches that businesses strove to create and protect over centuries now are routinely at risk.

Clark: I hesitate to say “e-commerce,” because that’s such a broad term, but certainly in retailing and in business-to-business marketing, fascinating things are taking place.

The technology now allows people to do something that has been the holy grail of business: not only to create but to own a market—actually to create the infrastructure in which buyers and sellers come together so that you get a little bit off the top of everybody’s transaction. You’ve got guys who are now reconceptualizing channels of distribution as markets, and then electronically creating very powerful, efficient forums where buyers and sellers come together.

David Perry [M.B.A. ‘97], a graduate of this school, started a company called Chemdex, in Menlo Park, California, a very nice example. He went into the specialty chemicals arena and discovered that using the Internet you could take a fragmented set of buyers and put them together with a fragmented set of suppliers, and lower everybody’s cost very substantially—and essentially he owns that market. He has to be fair. He has to be a neutral player structuring the market and offering services. But that is a business concept which people all over are trying to understand. In fact, it is becoming part of the basic toolkit of the general manager—to understand enough about your customers and your suppliers to be able to create these very focused markets using technology.

The other thing that is going to have profound consequences for the way business operates and the economy functions is the massive shift of power away from sellers to buyers—buyers in the consumer world, buyers in the business world. Buyers now have enormous power that they didn’t have before. So anybody who has made a business out of differentiating themselves on the basis of an information monopoly, or a locational advantage, may see their business disappear because this technology ruthlessly attacks those kinds of monopoly positions. That doesn’t mean you won’t be able to create differentiated advantage or margins, but they will have to be based on real value—some service, some technology, some concept you offer that is a superior value to those buyers—not just information. It hasn’t all happened yet, but it is moving that way.

Warsh: The perfect example of the type of business in the killing zone is the neighborhood specialty shop, the stationery shop, the bookstore, the record store, to some extent the grocery store. I like the idea that those things will continue to have a place in the world, but they’ll have to supply something that people want. It may not be something that they’re consciously aware of supplying now.

Koehn: If business history teaches anything, it teaches us that markets evolve not just from active consumers consciously voting their priorities very explicitly to entrepreneurs, but from an ongoing dynamic between consumer priorities, often nascent, and smart, commercially imaginative entrepreneurs who intuit that need and bring it to market—from Henry Heinz and bottled pickles in the mid nineteenth century, to Amazon.com or Howard Schultz at Starbucks introducing specialty coffee to huge numbers of people who had not previously encountered it. Eight years ago, we didn’t as a matter of course begin our days with a latte, and now, that is part of millions of people’s lives.

 

From Internet Connections to Human Connections

Clark: That is a great example because it underscores that people seem to value highly personal contact with real human beings. You have this weird interplay going on where, yes, electronics is great and it’s nice to be on-line, but sometimes you like to talk to a real person and have a real...

Koehn: Connection.

Clark: A human connection. That’s a very interesting interplay. Starbucks shows up with this neighborhood concept right at the time when the Internet is booming and people are on-line more than ever, and it’s just going gangbusters all over the world. I think we’ll continue to see funny juxtapositions like that.

Koehn: The importance of personal connections is as old as history. Spinoza said, “Man is a social animal.” I haven’t seen anything in the information age that dislodges that observation.

An interesting study reported in the New York Times last summer showed that people who spend a lot of time on the Internet are more depressed than the average person. That speaks, again, to the profound effects of this technology on our souls as well as our material life. The world to come is going to have these essential juxtapositions between technology that in some cases facilitates better, more meaningful, personal connections, and what we need and want as human beings.

Clark: There are a lot of interesting human dimensions to this technology that will offer opportunities to people who can figure out how to combine them creatively.

Ghosh: If you look at most industries today, there is a whole class of jobs that are “human modems.” You know, you call up your bank and ask, “What’s my account balance?” The person on the phone looks at a screen and tells you. Most cashiers in department stores are human modems. Even lawyers and people you think are highly professional tend to have a routine component of their job that a computer could do better. Of course, there’s a portion of the job that only a human being could do with today’s technology, but you’re going to get a lot of stockbrokers who become aerobics instructors or therapists or something.

Moderator: That implies that many of those intermediaries—not the people who make the steel, but those who have the prices, and place and take the orders—could go away. That’s a big social change because those have been desirable, secure occupations.

Ghosh: In the last century, the two biggest job occupations in this country were farmers and household domestic help. This is the same kind of transition. Those things have been moved out, but other things will come.

Clark: I think we have to be a little careful about walking too far down this road of imagining all these jobs going away.

Who are two of the biggest beneficiaries of the e-commerce boom? UPS and Federal Express. The effect is enormous. We’re seeing a transformation of the logistics system. But there are still people who are manufacturing, who have to figure out how to get the stuff from there to you, move it, store it, track it, and so forth.

There was an article in the last couple of weeks on eToys.com.

Higgins: That’s one of our companies.

Clark: The back office of eToys is very interesting because running one of these companies is a lot more than having a nifty web designer who puts up a nice site for you. You’ve got to invent a whole business where somebody is making the stuff, somebody is shipping it. You’ve got to organize it. And the customers expect instant action—they’re on the Internet, they want this stuff delivered to their doorstep tomorrow. Being able to execute on this model requires a very high degree of skill. There is a transformation taking place, but it is going to create lots of new kinds of jobs in that part of the economy as people figure out how to reposition the infrastructure to deliver in a different way.

Higgins: The goal of eToys management is not just to be the best Internet company, but also to be the best logistics company. It’s fascinating to hear what goes on at their distribution center in East Los Angeles at 3 a.m.

I’d like to go back to the suggestion that depression is more prevalent among Internet users. The accepted belief is that the Internet is only for data, and one only works through a computer staring at a screen. This will not be true for much longer, and is another example of why I think we’re only an hour or two past the Big Bang. There are new companies, like Webline, that integrate live customer-service people with the Internet. Soon video- and teleconferencing will be readily available. Research says that companies like Fidelity and Putnam sell mutual funds much better with human contact, so they are looking for ways to allow that to happen in conjunction with on-line sales. The technology isn’t difficult. The problem isn’t technology—it’s figuring out the market opportunity and seizing it.

Clark: The increased communications bandwidth that’s coming is going to have a huge impact. To be able to move visual images and voice with high fidelity and high quality will create possibilities that are hard even to imagine.

 

The Interconnected Generation

Sahlman: It’s very hard for us as a bunch of middle-aged people to relate to the technology. We may be hip middle-aged people, but what is it Stan Davis [former Business School faculty member and author of Future Perfect and Blur: The Speed of Change in the Connected Economy] says? “Technology is something that didn’t exist when you were growing up.” For our children, this stuff is not technology. Interacting over the computer, particularly as it’s likely to evolve over time, may be every bit as fulfilling as having a latte is to us. And people will evolve.

I gave a speech about the Internet the other day and began by describing my two teenaged children. The older one is a sports fanatic. The younger one is a computer jock. When they’re not doing other stuff, like playing golf, the 17-year-old is more apt to watch sports on television, and the 15-year-old is more apt to play an on-line interactive game. His ranking among 14,000 people playing Myth was number 8 (so I’m told), which reflects the long cold months between golf seasons. The older one relies on the younger one when he has a computer problem. The point is that there are those who understand and use the computer all the time, and those who do not want to. Even a slight age difference can separate the computer literati from the non-literati.

As more of those people who are technology literate become the dominant sector in the economy, instead of the baby boomers, I think you have a completely different world. That’s why I say it’s very hard to predict how that eventually plays out.

Warsh: What is it that’s really new? It’s not the personal computer so much, it’s the Internet and the total interconnectivity of everything.

Sahlman: That last mile, the connection to the household.

Koehn: It’s like the railroad. We laid the tracks through the 1850s and especially the ‘60s and ‘70s, but individual families didn’t see much. Laura Ingalls Wilder, out on the prairies of South Dakota, was untouched by the railroad until the mid 1870s, when suddenly tracks spanned the country. Then Montgomery Ward, who by founding a mail-order house pioneered a form of nineteenth-century e-commerce, had a catalog and suddenly could send Singer sewing machines—high-tech goods at that time—to the Dakota Territory. Wilder describes her whole family standing around in awe looking at the sewing machine and the manual. Until those tracks were all laid, we didn’t have a national market, and Rockefeller didn’t have the kind of scale he needed to claim 90 percent of the kerosene market, to lock in railroads and customers and build Standard Oil. I think the PC was like the railroad tracks. Now that the tracks are laid and the system’s in place, the capital markets are reacting to that because really only now are the possibilities so evident.

Warsh: But the consumers’ first experience of all of that was really the post office.

Koehn: That’s right. It was really the post office and free rural delivery.

Warsh: What the railroad did was to change the landscape, the distribution of people across the landscape.

Koehn: That, and the rhythm of their lives. We haven’t talked about how people’s sense of time and sense of patience changes with technology. There’s been a lot of work done on preindustrial working rhythms. But parents today can tell you about their children’s attention span. And we can all relate to how our sense of time changes by thinking about booting up our computer under a DOS system in 1990 or 1992—how many times we tapped our fingers on the table—compared to the length of time it takes us now to get impatient waiting for an Internet connection. The latter is a lot shorter than the former, but we’re more impatient.

So what’s really new under the sun is the interconnectedness of the Internet, and the possibilities that creates for all kinds of change.

Sahlman: Then the analogy is the telephone. The telegraph was a business-to-business tool. Ultimately, consumer telephony had to be the equivalent to the connectedness we’re seeing today.

Warsh: And that was something that took place not even after World War II so much, but maybe starting in the 1960s, when long-distance, person-to-person usage really soared.

Koehn: At the turn of the century, people thought the telephone was not really going to be used so much to connect you to Kim Clark or Shikhar Ghosh, it was going to be used to talk to an operator who would facilitate information. By the 1920s, in the cities where it was available, that is not at all what happened. Personal contact, the human connection, became the driving force in obliterating the predictable business model and creating a new one. That gave rise to long distance.

 

Degrees of Concentration

Clark: One of the things about this technology, compared to railroads or telephony, or even to electricity, is the fact that it was conceived and designed to be highly decentralized. It can grow to an unimaginable scale and depth and robustness without anybody really controlling it, because people can hook into the network at fairly low cost. And that has been one of these order-of-magnitude changes that has allowed the Internet to move so fast. That has contributed to its pervasiveness and everything else we’re talking about. Even though there is an analog to hooking all the households in a town up to electricity, or to the telephone, this one is really a very different kind of animal because of the way it’s structured.

Ghosh: People say anyone can start a business on the Internet, there are going to be hundreds of businesses in any given market. I’ve come full circle on that to believe that this is an extremely centralized technology.

At Open Market, we were in a basement way back in 1994, when two guys with long hair walked in and said, “Can you build us a transaction system?” I said, “What’s your business?” They said, “We understand the music business really well.” They were going to set up an Amazon.com for music, with the music distributors that have most of the titles. They were going to have 16 or 17 “storefronts,” one for country western, one for classical, recognizing that these were different consumers. They said, “We have all the economies of scale in the back. We’re going to have a set of editors who keep track of things and help people out. And what is anyone else going to do? What is a second music store on the Web going to do?” And I couldn’t think of a whole lot because they said, “Whatever they do, we’ll copy it.”

The notion has become that in each segment you’re going to have one or two megasites. Look at on-line services. There were six of them in 1994. For practical purposes, there’s one now. And look at bookstores. There might be three or four, but it’s not 20,000 physical stores. And in each category, at least as I see it right now, you’re going to end up with under 10 vendors, under five, whatever.

Sahlman: Oligopolies. The number of television companies, the number of auto manufacturers, the number of steel companies—every imaginable one, collapsed into two or three.

Ghosh: The notion that there would be 20,000 bookstores, because they could be local and they could be different, has gone away. So there’s two sides of it: using the new technologies, consumers can do whatever they want, get anywhere, and so on. But, from a business perspective, brand name and trust and those sorts of things are still important.

Koehn: They’re more important.

Ghosh: You could end up with one winner or three winners worldwide in every category. That’s the way I think it will go.

Higgins: That has been true in almost all industries. Kim made a similar point earlier about the competition between Apollo and Sun. In addition to Sun and Apollo, we should remember there were 40 other workstation companies at one time. jaws—”just another workstation company”—was the expression used in venture capital in the mid 1980s because there were so many of these companies. Now we look back and remember the Apollo-Sun competition. But in 1983, there were at least three dozen workstation companies vying for that space.

Sahlman: There were 120 disk-drive companies—pick your favorite example. But the distinction here is that Amazon.com didn’t exist until late 1994 or 1995 and now is running at a billion-dollar-plus revenue rate. You’ve collapsed down to only a handful of successful booksellers in a period of two or three years. That never occurred before—that concentration is happening so fast this time.

 

How New a World?

Warsh: What I want to know is, why does this brand-new world that you’re describing resemble so strikingly the world Nancy has already described—that rose out of the 1890s, when refiners across the country abruptly collapsed into two or three big ones, and automobile companies collapsed from hundreds to two or three, and that kind of concentrated, oligopolistic structure set in, industry after industry? If this is such a new world, and if this technology is so completely unprecedented, why does it result in industrial organization that looks so much like the old world—or does it?

Sahlman: I don’t believe there are new worlds. The great benefit of studying with Alfred Chandler [‘40, Ph.D. ‘50, LL.D. ‘95, Straus professor of business history emeritus] or having business historians in the midst of people at the leading edge—or bleeding edge—of technology is that you discover it’s all been done before. The only thing that has changed is the time dimension. And I think the rewards have changed.

Ghosh: And the geography.

Koehn: Absolutely. This is a global market.

Sahlman: Right. You go from “I can dominate a local region” to “I can’t dominate a local region because it’s a global market.” Think if you were in the antitrust business trying to define markets.

Clark: I think we should be a little humble about our ability to draw tight conclusions. For example, just think about America Online. A couple of years ago, AOL looked like a basket case. Everybody who tried to use the service got a busy signal. They couldn’t hook everybody up. [AOL chief executive officer] Steve Case was here on campus about two years ago, and he just got hammered by the students. He said, “No, we’re not toast.” And now AOL looks like a dominant success. But then you wake up one day and say, “Now other guys are looming on the horizon.” And the whole thing looks like it’s going to get redefined again. I think we should be humble about guessing how fixed all these outcomes are.

Warsh: I’m trying to get at the disparity between the experience of the consumer and the citizen in all this technological change, versus the practitioner, the businessman. From the point of view of a businessman or proprietor—somebody going out to try to find a way to make a living for the next 40 years—it’s a time of dizzying change. But from the consumer’s point of view, I’m not sure that the Internet is going to change my life that much more than the telephone did. It’s going to change the way I buy things. It’s going to change the sense of connection that I feel with the rest of the world. It’s going to change the delivery of all kinds of things.

But aside from the fact that I may not go to the video store or the music shop or the bookstore or the post office, I find it hard to see things on the horizon that are going to dramatically change the way I think about myself as a citizen of the world. I’ll still live in one place, have a job, deal with my family. I think that’s important. Shikhar’s number is really a useful one to keep in mind—that for much of the last century, half the workforce worked on farms. Today it’s under 3 percent. But the world hasn’t changed very much. There are still farms. We still eat. There are still plenty of jobs for people.

Koehn: We still worry about the future.

Warsh: We worry less about the weather. We pay less for food. But when I think my world is different from my grandparents’ world, I don’t think it’s different because of the telephone, particularly, or because of the increase in agricultural productivity.

Clark: In this realm, I believe change is slower and much less perceptible. You have to wait a while until you can get some perspective.

Higgins: I ran into someone the other day, originally from Ireland, who is now living in New Zealand. A hundred years ago, going from Ireland to New Zealand meant that you were completely gone. But this woman talks to her mother, back in Dublin, three or four times a day on the Internet. So she hasn’t really moved. They are in constant contact.

The fundamental question you raise, David, is about our real values. Is this technology helping us achieve these values, is the technology neutral, or is it having a negative impact?

Warsh: You’re right. But before we get to that, on the question of what has changed, take this issue of space, geography. You’d think that the one thing you could say about the Web is that it was going to make geography meaningless—it wouldn’t matter where you were, you could do the same thing anyplace. Yet the hard evidence is that rents in Manhattan are going up, not down.

Koehn: And in Silicon Valley.

Warsh: And in Cambridge, Massachusetts—all of the nodes are becoming pricey, because it’s more and more important to be in the nodes. So why is that occurring?

Ghosh: Your question reminds me of talking to Random House when Amazon.com came along in 1994 and they said, “So few people are on the Internet who are buying books from us, this is going to be an abysmal failure.” And now they say, “We want to deal with Amazon.” It’s not that their business has changed. The world around them has changed.

If I look at an average American, you’re probably right—not a whole lot will change—because the society is so advanced. But if I look at someone from India who did not have access to any of this stuff, their life changes dramatically. I was in India a year ago, and met a person who is working in Silicon Valley and living in Bombay. He’s an analyst in the semiconductor industry. When he does that from Bombay, somebody here doesn’t have a job. That notion of geography has protected a lot of individuals’ economic well-being. In India, you have companies that are teaching people Japanese so that they can be customer-service representatives for Japanese companies, but based in India.

So each of these things that we regard as being relatively safe starts to change. And in very subtle ways, those things now start to infringe on us.

Sahlman: The uncertainty has increased, and so has the speed. It used to be that there was gradual change. You had to take the helicopter up really high to see the change. Now the perception of change and the reality of change are much closer—you can get displaced from a bookstore in a couple of years, where it might have taken 15 or 20 years before. So I think you do put society in the pressure cooker.

 

Privacy and Policing

Moderator: What political changes might we expect from people who find the fact of change disturbing? What issues concern people for whom this change is not so inviting, or for whom it is costly? What is chapter four or five in Nancy Koehn’s story, corresponding to the reaction to Standard Oil—the creation of the Federal Trade Commission and the Food and Drug Administration? Where are we in the oscillation back and forth between enthusiasm for the market and demand for public-sector actions?

Sahlman: Where are the Luddites when you need them?

Koehn: Oh, they’re there. I guarantee it

Clark: I’d be interested in what David and Nancy think of this. When governments are confronted by technologies that reduce substantially their control over events, over information, there seems to be a move toward regulating the particular threat that’s out there. I don’t know that we would look for outlawing it, but I certainly think we should look for regulating it. Now, because of the nature of the technologies, it is very hard to control in the traditional sense. But it may be possible to regulate it or to tax it or in other ways to influence it for the purposes of control.

The Europeans have a very different perspective on these problems than Americans do. And certain parties in Asia have a very definite stance toward controlling the technologies.

In general, the Europeans have much less of a tradition of laissez-faire capitalism to begin with. And this is the laissez-faire of laissez-faire. There, the infrastructure is taxed and regulated to a point where it makes it much harder, more expensive to use. The cost of hooking up to make a phone call is something like six times higher than it is here. And there is a much different political and legal framework for privacy and freedom of expression, and a very different cultural environment for freedom of expression. All of that means this set of technologies has moved much more slowly there than in the United States.

Here, too, issues of privacy are ultimately going to be very big. The very difficult and challenging issues of autonomy and anonymity are going to be quite challenging. Governments will absolutely get into the mix, because although the technology permits some things that are quite valuable, it enables others that are highly destructive.

There is some reason to encourage reflection on these issues, particularly in the United States, because the maximum laissez-faire approach is problematic in some respects. For example, if two 18-year-olds showed up on my doorstep with an ax and proceeded to hack down my door and came into my house and spray-painted acrylic paint all over the living room, we would be shocked. If we caught them, they would be treated as criminals and tried. But on the Internet, if two 18-year-olds hack their way into your website, break into your business, and do destructive things which could be far more expensive than trashing the living room, we have treated that as a clever prank. On the Internet, we seem to be somewhat confused.

Another thing that you have to be clear about at all levels of society is that the technology lowers the cost of all sorts of antisocial and destructive behavior. You have a situation where all of a sudden it becomes incredibly easy to do things that in the traditional world were actually expensive. If you present people with an opportunity and it becomes easy to take advantage of it anonymously, oftentimes they engage in destructive behavior that in the old physical world they would not have done.

So in the business school we have had to articulate previously implicit or even nascent values and standards much more overtly than we did before, much more sharply, and also to reaffirm our commitment to a set of standards and of behavior that we think is fundamental to a learning environment. Our students, by and large, have welcomed that structure, because, for them, too, it’s a strange and uncertain world.

Institutions are going to have to do that over and over again because the technology really lowers the cost of bad behavior. Somehow, because you can do it anonymously, through a medium that doesn’t seem real, it seems sort of like play, so if we’re not careful we can encourage very destructive behavior.

On the other hand, these technologies can be used to enhance dramatically the effectiveness and the positive impact of study groups or other team projects. If it’s used wisely and with the right kind of structure, it can be very, very effective and valuable. If it’s not, it can become very destructive.

Ghosh: One of the points where someone will have to draw some lines is privacy. The big difference in this technology is that it allows you to see what someone did not do. You go to an Internet store and do not buy, or you spend three seconds on it, then go from this counter to another one. With the new technology that’s coming along, it’s not only what visitors didn’t do in your site, it’s what they didn’t do anywhere. How you use that information becomes a major issue—you know everything somebody did while they were on-line as far back as you want to go. There are all sorts of uses for this that can be extremely destructive, and not that many that are that productive.

Higgins: I think our biggest friend, and our biggest enemy, will be the federal government. If you look at the underlying forces driving business formation, you have to look at many things, like the regulations permitting stock options and the impact of tax policy. If you look at technology, you have to recognize DARPA and what it gave us. The federal government is the source of much of what has happened here. But if we don’t handle privacy correctly, if we don’t handle SEC or antitrust regulation properly, the federal government can destroy this opportunity. The government is currently catching its breath to see where it goes. I’m optimistic that it will figure it out. But it didn’t figure out any of these issues—stock options, tax policy, pension-fund investing in venture capital, or many other similar issues—without an enormous commitment from the private sector. We must educate the government, work with it, and form a partnership. That is going to be critical going forward.

Ghosh: The problem is, is it the federal government, or is it a sort of world government, because of the nature of the technology?

Sahlman: Or is it other manifestations of values, or communities rising up to create internal values? Kim’s story about Harvard Business School as a microcosm of what values you try to get people to put in place is a good example. The government is almost always at the lagging edge, looking in the rearview mirror, trying to protect the status quo.

Warsh: Except in this technology-seeding activity, where the government is always looking for new ways to do really difficult things—go to the moon, get computers to work together.

Sahlman: But if DARPA had not done that for the Internet, someone else would have. My view is that the decreasing cost of investment and the modularity that Kim was talking about make the role of government far less than it once was.

Warsh: In these established technologies. But there are new technologies on the horizon all the time where only the government can make the investment.

Koehn: Think of federal sponsorship of biotech research, for example, or land grants to railroads. I think government’s been a major actor in each of the past industrial revolutions. It seeds the ground, directly at some times and unintentionally at others. In other ways, it’s very reactive. Antitrust policy was born in the wake of Standard Oil, the government’s reaction to a series of explosive changes that it wanted some control over, and that it had some political mandate for.

 

The Flexible Social Contract

Koehn: Now, there’s another actor we’re not talking about. At the risk of using language from the second industrial revolution, let me say a word about labor. Now, that term itself is a function of how workers, individuals, reacted with a lag to the second industrial revolution. Organized labor didn’t come on the scene with Carnegie’s entrepreneurial steel ventures, which later became big business, because, as Kim was saying, it takes people in groups a while to react and for the social and political connections to form. Big labor comes on the scene in the second chapter of the second industrial revolution, not with the advent of the railroads or steel or electricity.

I think we need to think about the nature of work in the information revolution—not just for bank tellers, not just for steelworkers, not just for the job categories we used to describe the second industrial revolution—because in the same way that the business models are changing, the categories of labor and work are changing. Women now constitute a huge percentage of the workforce in industrialized countries. That’s going to affect reactions to the new technologies in a way that we don’t have any model for thinking about. It has already affected families in profound ways.

So how people work, their response as workers at all levels, to downsizing—a term born of the structural adjustments to the information revolution, of the new business models, of the need for flexibility that modularity demands—has very broad-ranging consequences.

I think we don’t really know yet where some of the friction points are with the new technology. But I guarantee it will certainly be around work and people’s means of subsistence and the uncertainties and possibilities that the new technology produces.

Take the UPS strike a few years ago. What was that really about? On the surface, it was about benefits, working hours, and how much overtime. But it was also about one model of workers’ expectations clashing with the new exigencies of flexibility and global competition in the information age. That strike was a prologue to a bunch of different conversations and potential conflicts that are to come, among service workers, manufacturing workers, knowledge workers.

Clark: Think about the traditional model of a layoff. In the U.S. legal system a layoff is institutionalized in the collective bargaining environment, in the government. The notion of laying people off is absolutely established as a standard mode of operating in the old model. And what is it caused by? It’s caused by a downturn in business activity. If business activity turns down, one of the things the firm has available to it is the layoff. People don’t like it, but that’s life.

What we have today is very different. We have an economy that is growing at three or four percent over seven or eight years. During that time, we didn’t have any downturns, but there have been huge numbers of “layoffs.” Now we don’t call them layoffs because layoff has a specific meaning. So it’s been “downsizing,” or some other kind of...

Koehn: Reengineering.

Clark: Reengineering, and that’s all about the transformation of these businesses and these models, and of competition. All of a sudden, people who never were affected before can’t understand what in the world is going on.

So the logic says, just like in the old days, there will be some kind of institutional evolution. One of the things developing is the reconceptualization of the labor market itself. Some of these companies have figured out that if this is the way the world works, then we won’t actually employ the people—we’ll outsource.

Koehn: That’s a fundamentally different model, for business and for individuals’ sense of autonomy.

Clark: These outsourcing firms are growing very rapidly, and are very big business. You know, I don’t own my employees. I just have a contract. And if something happens, I say, “I don’t need these 4,000 people anymore.” And then we reallocate those people and so forth. Those firms are growing. It’s becoming a very different social contract.

Sahlman: Think of Silicon Valley. A clever way to describe Silicon Valley is it’s one company, meaning that if you’re in one subsidiary of that particular company, and that subsidiary does badly, because of the increasing mortality rate of start-ups, you just go next door. You join another part of the “company.” You simply restart your [employment] contract.

Higgins: You can even use the same parking lot.

Sahlman: It’s easier to change jobs and parking than it is to change apartments. But the point is, you have to understand the interrelationships among these various people, because they all get reengineered and reorganized. And just as power shifts to consumers, power and responsibility shift to individuals as employees—if they’ve got the skills.

Ghosh: About a week ago, one of the people who works for me said, “You know, as a company we’re drawing so much on my husband, because I’m not home on weekends. I keep discussing our work issues with him. You really need to give him some options.” I said, “But he doesn’t work here.” And she said, “But he does, sort of. I mean, he supports me and if it weren’t for his good graces, I wouldn’t be able to work here until 9 p.m. He’d make my life miserable. I’d be less productive. We’ve got to do it.”

Sahlman: Family options.

Ghosh: Family options.

Koehn: Literally family options. That’s a great mental file-folder for, again, the complicated range of values and choices that confront businesses and individuals and their communities at moments when human knowledge is so extraordinarily important at all levels of the economy. That’s a wonderful metaphor.

Ghosh: What I really figured out was that if I can get him committed, then I will get twice as much out of Kathleen as I would have otherwise. Interestingly enough, it’s just a token number of options.

 

Conquering Complexity

Moderator: How do people deal with all this complexity? There is much more choice as a consumer. If you’re a business, instead of having an established supplier relationship, you might have a lot of them, or put each job out to bid on the Internet. At what point do people have too much choice?

Clark: But even that’s an opportunity.

Koehn: Yes, I think that is an opportunity. One of the biggest business opportunities, certainly on the Internet, lies with making less do more. The Internet is now estimated to contain a half-billion pages—making it bigger than the New York Public Library—and it is growing very rapidly. Despite the success of search engines and portals, the length of time it now takes an individual to accomplish something, to solve a problem on the Internet, is increasing. So I think one of the really important opportunities lies, one, in helping people get the kind of information that they want; and, two, in adding all kinds of value to that. My students often say, “Can’t I just get this over the Internet?” when I ask about some historical phenomenon or interesting issue. And I say, “Yes, you can find some things on the Internet, or in the library, but the value you add will always be the creativity, the structure, the form, the insights, the human wisdom that are brought to information to make it something more than the sum of its parts.” I see those kinds of values in a knowledge economy being unbelievably important, even more important than they were in the first or second industrial revolution.

Higgins: I think one can argue that things are going to become less complex and easier to use. That’s the miracle of technology—making it simpler to do things.

Right now, search engines, for example, are theoretically the easiest way to do things. Then along comes a metasearch engine, something like Ask Jeeves [www.aj.com], where you actually ask a natural-language question. Dell, instead of sending someone a customer-service manual two inches thick, uses this natural-language technology to address their customers’ needs more easily. Unless technologies make it easier for the average person, they won’t be successful.

Behind the screen it has become technologically more complex. But what makes it sell is that it actually becomes simpler and more sympathetic to the user. That’s the great change. We’re not really talking about technology. We’re talking about market opportunity and figuring out how to make technology usable. The Internet and cellular-telephone technology were each two decades old before they suddenly exploded on the horizon.

Clark: This is a classic pattern—decades of technological change produce growing complexity, interfaced by growing simplicity, so that people can get access to it. Look at what happens now when you go get a tank of gas. You drive in, swipe your credit card, fill up, and you’re out of there. Contrast that with all the technology required to deliver that service to you. That’s the trend. And that’s the opportunity, because this technology is proliferating and interweaving complexity which nobody can make any sense out of. But there’s a pony in there somewhere.

Sahlman: The way to frame it is that out of every crisis, every bad consumer experience, there is an opportunity for someone to address. And the nature of the model in the United States—we began by describing why we see so much activity here—is that there are thousands of people who are preoccupied with how to fix those problems, and they’re all getting funded, and all getting rewarded by society and by the economy.

Clark: We have sitting right next to us Baker Library, the best business library in the world. We’ve found over the last few years, as we’ve really gotten into this technology, that if you do it right, the librarians can be enormously powerful on the Internet. If you can figure out how to hook the brains in there to the technology in a format that allows you to get access to what they know about the sources, you get this marvelous little simple interface and access to really high-quality information. Just think about the library. It’s got several hundred thousand volumes, and all sorts of artifacts and documents. Who can master all that? But you go talk to one of the librarians and say, “This is my problem. I’m trying to figure this out.” They say, “Follow me.” And they take you right to the place and they say, “Now, this is good right here. But over here, this is the really good stuff. So you’ll want to spend time here, and then you’ll want to come right over here and you’ll want to spend time where the really good stuff is. But you have to read this first or you won’t understand it.”

You’d have no prayer of finding that stuff by yourself. So we’re now saying the technology might allow us to harness that skill, that knowledge, in ways that are very, very powerful because knowing where we can get really good information is one of the hardest things people confront when they’re trying to do research. Not Alta Vista coming back and saying, “We have found 29,000 pages that have your search word on them.” Even with Ask Jeeves and all these other engines, you’re searching for the librarian who says, “Follow me.”

Sahlman: If you think of drinking from the fire hose, all we did with the Internet is to increase the size of the hose. What do people always do? They try to figure out ways to filter stuff. Why does AOL exist? I think it’s because it put a cap or a filter on the fire hose, that people got comfortable going through. That’s an example, again, of the phenomenon of taking a problem created by technology and turning it into an opportunity.

Ghosh: One of the things we haven’t touched on, about the Internet, is that it’s hard to figure out what’s valued and what’s not. It brings everything down to a commodity level. I think trust and loyalty are going to be very highly valued, and everything else is going to be a commodity.

We’ve got companies right now that are offering free Internet service if consumers will buy the computer from them. Now we have a company that’s saying, “If you buy our Internet service, we’ll give the computer away for free.” And I’m pretty sure there are going to be companies that say, “We’ll give them both free if you’ll only look at our ads.” You keep going down that chain—everyone is paying for attention, paying for eyeballs, paying for trust—and the consumer says, “What has value?” Somehow that whole issue is going to start to move.

Sahlman: So price is approaching literally zero.

Clark: In fact, you’re seeing that now. What’s happened with Linux software—where you’ve got literally thousands of people writing code, upgrading and extending the software at zero cost—is a model that we’ll see played out on the Internet.

Sahlman: It’s a natural response to Microsoft and others.

Warsh: It’s zero pecuniary cost. Nobody pays anything for it. But they’re rewarded in other ways.

Clark: But it’s interesting that in that world, Red Hat Software Inc. has decided to try to make a business out of this sort of thing. It turns out that Red Hat is the best source of free software, because they figured out how to put a wrapper around the free stuff in the form of superb manuals, and that interface allows you to trust them. So there is value in there, and you trust them because they provide excellent guidance.

Higgins: They say, “Follow me.”

Clark: They’re the librarian. They say, “Follow me.” The stuff itself is free.

Koehn: This is the way that great, commercially imaginative entrepreneurs have been doing it since Josiah Wedgwood created an effective, enduring brand and a large market for china in the late eighteenth century.