Kirk Klasson

First, a glance back…

As the inaugural post here, I think it only fitting to take a look back at some work that first appeared about ten years ago. At the time I was working at Cambridge Technology Partners and the internet while no longer a new phenomenon was still one that most businesses had not sorted out. Venture capitalists were backing high school kids, sock puppets were media darlings and everywhere consultants were riffing on the “New Economy”, the pending revolution that the internet would bring to the world’s economic order.

Only thing is…it never happened. Instead, the internet augmented and in some ways amplified acknowledged attributes of the existing economy. Back then, I, along with a handful of folks at Cambridge Technology Partners, produced a series of white papers dedicated to exploring exactly what impact the internet might have on business as usual. At the time, this series was considered leading edge, some of the best thought leadership out there. How could we tell? The second in the series, a paper entitled “Business Models for the New Economy”, ended up being translated into at least 10 different languages and incorporated into college curriculums in both the US and Europe. Fragments of this paper were re-published with (and without) attribution by other consultants world-wide and you can still see versions of it bouncing around on the internet.

Unlike most consultants back then, these white papers did not try to predict the exact influence of the internet on any given business but rather to look at accepted economic principles and extrapolate how the internet might influence them over the long run. While the jury is still out, I think it would be safe to say some of it we got right and some of it we got wrong. But the good news is that some of it is still sorting itself out in ways that we can all see if we still care to have a look.

For instance, here’s a couple of my favorites:

1. Does Coasian economics trump demand certainty in the formation of organization boundaries? Coase first postulated that the economic boundaries of the firm were determined, in part, by the transaction costs of transferring value between separate business entities. The larger the transaction costs the greater the incentive to conduct all value creating processes within the boundaries of single entity, under sole ownership, aka large corporate hierarchies. However, another line of thought would suggest that certainty of demand, not transaction costs, would dictate the pooling of assets and expertise. Put another way, if the internet lowered transaction costs to nil, why couldn’t you order your next car from you local gas station who would assemble it from parts and deliver it to your drive way?

2. What is the exact role of information and markets in light of asset specificity? It was widely believed that the internet would replace all market making activity. However, as goods and services become highly differentiated and therefore highly specific with respect to the outcomes they are intended to produce what kind of market making activity is most effective? Put another way, why is the greatest amount of electronic market making conducted around the one item with the least amount of asset specificity, money, while the most effective marketing for highly complex goods and services, let’s say jet fighters and legal services, is almost always conducted face to face?

3. Has the internet really improved the problem of asymmetrical information in the exchange of value between buyers and sellers? Or, as a mentor of mine once put it, everyone needs to take advice from time to time, the only question is who do you take it from and what do you do with it once you’ve got it? So with a billion people blogging On Technology, are you any better off or are you still gonna make some lousy decisions the next time you walk into Best Buy?

With any luck the original series of white papers is attached.

If you want to see how far we all have traveled, take a look.

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