The Second Curve: Managing the Velocity of Change

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The Second Curve Managing the Velocity of
Change

• Ian Morrison

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The Second Curve
First Curve
Second Curve
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The Curves

• First Curve
• The established way of doing business
• Most of the current Profit and Revenue
• Slowing in the long run
• Second Curve
• New business or new way of doing business
• Radically different from the first
• Source of future growth

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Drivers of the Second Curve

• New Technologies
• Faster, better, cheaper
• New Consumers
• Anything, any time, any place
• New Emerging Geographic markets
• Asia, Latin America, Eastern Europe

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New Consumers

• Better educated
• Discriminating
• Skeptical and demanding
• Better informed
• Individualistic
• With changing values

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Publics Satisfaction with Industry Decreases
Managed Care Loses More Ground than Others
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Births (millions)
The Baby Boom
The Echo Boom
The Greatest Generation
The Echo Bust
The Baby Bust
The Forgotten Few
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California Demographics Everyones a Minority
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New Technology

• Computers
• Communications
• Internet

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Americas Technology Boom 1997-2000

• Demographics of the Baby Boom
• The 401 (K)ing of America
• The NASDAQ Wealthy betting with the houses
  money
• Day trading by individuals and institutions
• The Real Y2K Bug
• Dot.Commers had free money to buy servers, ad
  space, brands, people, and real estate

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The Ugly Correction 2000-2001

• The Internet is the engine of change and
  productivity or we have a problem
• Forced the Establishment into e-business, but the
  sense of urgency has waned
• If it ends it will end badly, but.
• This is not 1929 yet because
• Leverage is less
• Markets are more regulated
• Instruments are more diverse

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The Long Boom

• Openness in technology, trade and communication
• New technology
• Internet and E-commerce
• Genetics and genomics
• Nanotechnology
• Markets and networks over government and
  hierearchies

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Knowledge as Value
Product Price per
Pound Pentium III 800 Mhz 42,893.00 Viagra
11,766.00 Gold 4,827.20 Hermes
Scarf 1,964.29 Palm V
1,726.92 Saving Private Ryan on DVD
874.75 Cigarettes
100.00 Mercedes-Benz E-Class Sedan
18.98 Chevrolet Cavalier Sedan
6.76 Hot-Rolled Steel 0.19
Source Fortune, March 20, 2000 p. 68
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The Internet
Computers
Communications
Commerce
Content
Community
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Americans On Line
Source Harris Interactive, 2001
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The growth of Internet access worldwide
Number of adults with Internet access (millions)
5 of popl
9 of popl
(Source eMarketer, eGlobal Report, March 2000)
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Comparative estimates by region (2000)
Number of adults with Internet access (millions)
(Source NUA Internet Surveys, November 2000)
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Internet access for OECD nations
Percent of adults with Internet access
(Source OECD, 2000)
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Technology Diffusion

• Drugs, sex, and rock n roll
• B 2 B usually before B 2 C
• Media accumulate

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Morrisons Five Laws of the Internet

• Law 1 The Mother of all Commoditizers
• Law 2 The margin is captured by the consumer
  not the innovator
• Law 3 It is a 1 to 1 medium but the race is
  on to build mass brands
• Law 4 The Alberta Tar Sands Model of internet
  advertising
• Law 5 There is a lot of physical
  fulfillment in e-commerce

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Business to Business Infrastructure Players

• Hard Infrastructure Cisco, Nortel
• Soft Infrastructure Ariba, Oracle, I 2
• New Plumbers Razorfish, Sapient
• Hosters Exodus, Worldcom
• Market Makers Commerce One, FreeMarkets
• Vertical Markets Neoforma, Metalsite
• Toolmakers Kana, Siebel, BEA Systems

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Market Capitalization of B2B Players
Selected Market Capitalizations (Billions of
Dollars) March 2000 March 2001 I-2
26.7 6.4 Exodus 25.7 4.7
Ariba 25.6 2.6
Commerce One 15.7 2.1 Kana
Communications 7.2 0.2 FreeMarkets
6.6 0.4
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Alternative B 2 B Models

• Electronic Spot Markets
• E-Brokers
• Demand Collection Systems
• Reverse Auctions
• Auctions
• Electronic Marketplaces

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Business to Business Models
Sellers
Buyers
Auctions
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Business to Business Models
Sellers
Buyers
DCS
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Business to Business Models
Sellers
Buyers
DCS
Auctions
E-Markets
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Markets From First Curve to Second Curve

• First Curve
• Capital
• Producer
• Atlantic
• Japan
• International Trade
• Computers
• Money
• Market Segments

• Second Curve
• Knowledge
• Consumer
• Pacific
• China
• Electronic Commerce
• Internet
• People
• Business Ecosystems

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Organizations From First Curve to Second Curve

• First Curve
• Mechanistic
• Engineering
• Corporations
• Horizontal Integration
• Business Processes

• Second Curve
• Organic
• Ecology
• Individuals and Networks
• Virtual Integration
• Culture

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The 21st Century Organization

• Hyper-Focused Firm
• Cultural Juggernaut
• Extended Enterprise
• Shared-Risk Alliance
• The Object Organization
• The Fishnet Organization
• The Self Generating Organization

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Individuals From First Curve to Second Curve

• First Curve
• Hard-Working
• Security
• Current Career
• Faith
• Loyalty

• Second Curve
• Hyper-effective
• Uncertainty
• Future Career
• Hope
• Courage

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Issues and Impacts

• Commoditization or Mass Customization
• The Rise of Perfect Markets
• Powerful New Intermediaries
• Re-intermediation versus disintermediation
• Digital cannibalization of overhead
• Dont disrespect the First Curve (2000)
• Dont disrespect the Second Curve (2001)
• Learn to play both curves

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Staying on the First Curve

• Own the First Curve
• Slide down the demand curve into oblivion
• Export the First Curve
• Kill the Second Curve
• If at first you dont succeed, rename it

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Jumping to the Second Curve

• Eat the Corporate Lunch
• Turn a small base into big bucks
• Develop a brass neck
• Look for exponential marketing
• Take up paradigm surfing

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Playing Both Curves

• Redefine the Value Chain
• Create Second Curve Portfolios
• Isolate, incubate, insulate, integrate
• Prune the Second Curve
• Shift Curves based on culture and competency
• Organize for Two Curve success
• Scale, incentives, organization, people