In the last couple of decades, we’ve seen plenty of discussion about digital native versus digital migrant people. But we’ve seen little discussion of the distinction as it applies to businesses. There’s a reason for that. At the enterprise scale, only a few companies qualify as digital native.

The only digital native Enterprise 2.0 businesses around today are those founded around 2000 to 2003 and that possessed the ability to build their own tools. This narrows the field significantly, to companies like Facebook and LinkedIn.

The problem with these examples is that they’re all in the consumer social media business. They went down the 2.0 path because they were forced to eat their own dog food to make financial equations balance. But they’re hardly representative of the economic landscape. They don’t make paint or shoes or refine oil.

The first generation of digital-native companies is still young–about four years old, in fact, since you really couldn’t build a 2.0 company from the ground up, based on commercial off-the-shelf tools, before 2008. Of course, not all successful four-year-old businesses will go on to become large. Most will either fail or stabilize at medium size. But a few will grow big.

Transitional E2.0 Economics

This means that this transition-era Enterprise 2.0 conversation we’re all so excited about today is going to be largely irrelevant by about 2018, when the first generation of digital-migrant Enterprise 2.0 businesses grows up. There’s still plenty of action left in the old economy, but the emerging new management science will have to be based on companies founded after 2008.

What’s more, only a fraction (perhaps a third) of today’s transitioning companies will actually make it. The rest will succumb to one of what I call the four horsemen of the enterprisocalypse: dissolution, disruption, disaggregation, and de-engineering. Their stories will at best teach us how not to fail. Not how to succeed.

Which transitioning companies will make it? Companies that own a valuable data flow are well positioned. If your competitive advantage is based on privileged access to some river of data, there’s a good chance you’ll make it. If not, there’s a good chance somebody will eat your lunch.

Where The Future Is Emerging

A couple of recent consulting assignments afforded me a privileged view of the emerging digital native landscape.

The main players are in sectors you’d expect: media, gaming, entertainment, design, biotech, and consumer retail. These sectors are starting to transform at their very core.

Other sectors are transforming from the edges–previously weak parts of the supply chain are becoming strong. Such sectors include finance (innovative banking services), specialty manufacturing, education, contract labor, outsourced customer support, small business logistics, and event management.

What do digital native companies look like today, and what are they likely to look like when they grow up?

We’re used to thinking of big companies based on three dimensions: revenue, staff size, and value addition. So typically, hedge funds aren’t considered big companies. Despite producing a lot of revenue, they have small staffs and don’t add much value to the real economy.

Likewise, digital native companies look small on the staff and value-addition dimensions. It’s possible for them to get to multiple billions of dollars in revenue with only thousands of employees and very little direct value addition. To tell them apart from businesses like hedge funds, you must look at how the staff strength and in-house value addition are amplified via leverage.

So in the case of the large consumer Web E2.0 businesses of today, user-generated content adds both de facto staff and a lot of the value that’s being booked as revenue. Or to take a non-consumer-Web example, the transformation of retail through self-checkout, social commerce, and other innovations has created a leveraged labor force. Customers are now checkout clerks and baggers, as well as part of the marketing staff, since they spend more of their time looking into and reviewing businesses and selling to others by feeding recommendation algorithms and participating in online word-of-mouth.

Even adjusting for these leverage effects, digital native businesses can’t fully occupy the underutilized labor force resulting from the declining old economy. To understand this notion, you need to work through some 1:9:90 math (what is known as participation inequality). User-generated content tends to follow a pattern where for every one dedicated contributor, there are nine casual contributors and 90 least-effort contributors (who do no more than the equivalent of hitting a Like button).

Moving the contribution distribution curve higher up along the value-addition axis to prosumer economics, the word “ecosystem” that we all love so much gets defined as “nine contractors and 90 part-time freelancers for every full-time employee.”

Making a living in a 1:9:90 economy is much harder than people think. The reality beneath exciting words and phrases like free agent, ecosystem, and empowerment is a very harsh one: Firing your boss and being your own master comes with costs that not all people will be able to pay.

The result is going to be a very tough transient labor market for a couple of decades, until the imbalance between available, productive work and willing workers is fixed naturally by an aging population and declining birth rates. In the interim, economic growth will slow and possibly enter into a long, slow decline.

There are those who think that ingenious ways will be found to bring this underutilized labor force into the 2.0 economy. I have grown increasingly skeptical of this position.

The Shallowness Of Cognitive Surplus

Clay Shirky’s notion of cognitive surplus is at the heart of the excitement about the potential of E2.0 models.

Sure, everybody can take mediocre pictures, bag his own groceries, and write restaurant reviews. But not everybody can participate in complicated and specialized activities like programming or airplane design. What would it take for that to happen? Is the current craze for DIY drone-buildingan indicator that LinusBus might one day disrupt Airbus and Boeing?

For leveraged 2.0 labor economics to be extended to more complicated industrial activities, businesses will have to learn to do complicated things by coordinating larger numbers of less capable (and lower-paid) people. This isn’t always possible, but where it is, failure to adopt the model will destroy companies.

If you can figure out a mix of automation and clever coordination through which a hundred high school graduates with pre-calculus level skills can replace one aerospace engineer with a graduate degree, you could replace one labor unit paid $100,000 a year with a 100 labor units, each paid $900 a year (likely through a gamified compensation scheme that distributes rewards unequally, and effectively at a rate lower than the minimum wage).

What this means is that cognitive surplus is a broad but shallow resource. Using it effectively is a problem analogous to distributed computing. If you can invent a “Hadoop for people” technology, there’s a good chance you will become the next Internet billionaire. Amazon’s Mechanical Turk and flash mobs are the early signs of this kind of human-coordination technology.

The future of the E2.0 revolution depends on the limits to distributed labor-computing, with people clouds comprising cheap, low-power, highly replaceable, and unreliable human parts. And the ability of those parts to survive on much lower real incomes through lifestyle design innovations.

It may sound bleak to those rhapsodizing about how, in the future, everybody will be empowered to express his or her unique individual humanness and creativity, but it is where we are headed. You need to see the deeper romance of this emerging world in order to not be depressed by it.

Source: Information Week

Related Posts:


Comments are closed.