“As information technology’s
power and ubiquity have grown, its strategic importance has diminished. The way
you approach IT investment and management will need to change dramatically”
So begins an article, “IT Doesn’t
Matter,” by Nick Carr in May’s edition of the Harvard Business Review. Carr’s
argument: I.T. was transformative, but the transformation has happened –
“the I.T. buildout is much closer to its end than its beginning.”
Because information technology will no longer
function as a mechanism for attaining competitive advantage, Carr proposes three new rules for I.T. management:
Ø Spend less;
Ø Follow, don’t lead;
Ø Focus on vulnerabilities, not opportunities.
Just as the Business Review was shipping its
May issue, Business Week was moving in the other direction. Its cover story for
12 May 03 is titled “The E-Biz Surprise.”
The article maintains that electronic business
is stronger than ever – for both companies and customers. It paints a compelling
picture of a growing industry cluster that is much more profitable and influential than most people believe:
Ø Spending on e-business projects has risen every year since [2000], and now comprises 27% of all tech spending;
Ø Online advertising is changing but will grow to $6.6 billion this year;
Ø If you invested $1,000 in every e-tail IPO, including every dog, you’d be up about 35%.
Then, on 4 May, The New York Times weighed in
with an article that looked at the industry’s own views of its “mid life transition.”
Some executives, like Larry Ellison, believe
that the industry is overbuilt – there are too many firms and there needs to be a thinning of the ranks.
Others point out that information technologies are different from other infrastructural improvements like the railroad
or the telegraph because information technology is a general-purpose tool, driven by software and without material constraints.
The unrelenting pace of improvement in processing speeds, data storage and miniaturization means the tools constantly
become more powerful and smaller; people can then figure out things to do with them.
………….
Underestimating the potential for computing has been a common pitfall over the years, from Thomas J. Watson at I.B.M.
in 1943 ("I think there is a world market for maybe five computers") to Ken Olsen at Digital Equipment in 1977 ("There is
no reason anyone would want a computer in their home").
One of the reasons for this comes from a concept complexity theorists like Stuart Kauffman call the “adjacent
possible.” Each new advance in computing power makes feasible a whole range
of new products and services.
Some of these turn out to be attractive; many of them don’t. The
innovations that survive create new businesses from which there are new “adjacent possibles.”
From where we are today, it’s very difficult to predict the new products two generations out, because so many
of this next generation’s crop will fail, and the ones that succeed may do so in ways that are unanticipated. So industry pioneers, like Watson and Olsen, underpredict the usefulness of new I.T. approaches.
As an example of how this can work, consider Netflix, one of my innovations to watch in 2003. If Amazon.com was a pioneer in the e-tail space,
then Netflix feels like a second-generation company.
The firm has combined a number of first generation information based technologies into a second generation subscription-based
DVD service. Like Amazon.com, Netflix provides DVD rental recommendations based
on your previous orders. Like Blockbuster, the company has negotiated a revenue
sharing model with movie studios for DVD rentals. These technologies are essential to the existence of the service, but the
value of the service comes from the integration of these elements, along with many others.
The result is a total package, built on information technology, which is increasingly attractive to an increasingly
large subscriber base. I’m a stockholder in Netflix. The company has grown
-- revenues are up 82% quarter to quarter. Its stock price has risen -- more than doubling in the last six months. I wish I had more stocks like Netflix, but that’s another story….
Jim Gray, a computer scientist, has worked in the industry for more than 30 years. For his pioneering research on
databases and transaction processing at I.B.M. and elsewhere, he won the 1999 A. M. Turing Award, sometimes called the Nobel
of computer science. "I've seen the ‘end’ at least twice in my career — only to be surprised by the next
wave," said Mr. Gray, who now works for Microsoft. "My guess is that this computer thing has just gotten started."
Relevant links and references:
1. The
table of contents for the May 2003 Harvard Business Review, from which you can order Nick’s article.
2. The New York Times article on Technology’s mid-life bump The quote from Jim Gray comes from the Times.
3. Business Week’s article is called “The E-Biz Surprise.”
4. Netflix: April 17 (Reuters) - Online DVD rental service Netflix Inc.(NFLX)on Thursday reported a sharply narrower first-quarter loss per share on a nearly 82 percent gain in revenues as business
grew faster than the company expected.
