Had a lot on my mind, lately. In short, I think many of us are at a tipping point…
As a Christian, I’m going to start with a theological point. If you’re an atheist, skip this paragraph! Humans are created in the image of a trinitarian God, to be community-oriented, and to favour experiences that are collaborative, co-creative, and allow the individual to have his/her say. To put it another way, people love to be consulted, and they love to argue. Our pursuit for meaning in life is a collective endeavour and we get to more meaningful stuff by arguing and “dialectic”. Hold that thought.
In 1937 a British economist called Ronald Coase wrote a famous paper on “The Nature of the Firm“. He hypothesised that corporations only need exist to address the problem of prohibitively high transaction costs between individuals in a marketplace. The very structure and existence of a corporation, then, only makes sense to manage efficiencies and economies of scale, as a better alternative to leaving individuals to find others to trade with, to negotiate price, to manage the logistics of supply, etc. Heady stuff, but the basic idea is simple enough: if transaction costs between individuals were not prohibitively high, there would be no value in having individuals come together in a “closed economy” called a corporation, with all the complexities and compromises that come with it.
Now, since 1937, there’s not been a great deal of talk about Coase, because the world has operated on the assumption – never strongly challenged – that corporations are effective economic models. We can’t imagine big business without them!
However, since the advent of the Internet, and its broad adoption for important things in every sector of society and industry, we are beginning to see real working examples of alternatives to the traditional corporate model, for getting important stuff done. These new models are championed by people who are passionate about openness and transparency, who have seen how impossibly hard it is to foster innovation in the typical corporate structure. These are folk at the fringes.
Linus Torvalds sat at his computer in 1995 and wrote an email to colleagues, sharing the vision for a free and open alternative to the computer operating systems available in the day. Out of that simple invitation, a global movement was born – awkwardly at first – called Linux. Today it remains an “open source” operating system, but it has been so incredibly successful – due to its high quality and broad appeal – that it now powers the majority of servers, routers and other such devices which power the public Internet globally. It’s a truly remarkable story.
Similarly remarkable is the story of Wikipedia. Indeed, so successful has the Wikimedia Foundation been, that they have all but removed the encyclopedia from the for-profit business world’s reach. The closest commercial competitor was Microsoft’s Encarta, which closed down in March 2009 when it was fighting to retain under 2 per cent of market share. Encyclopedia Britannica continues, but I honestly don’t know how! In successfully eliminating all competitors, Wikipedia has gone further: it has taken advantage of the Internet, along with a mature tool for peer collaboration and co-creation called the wiki, to completely redefine what success looks like in the encyclopedia business!
And this goes to the very heart of what digital disruption does: in many sectors of industry and society it not only offers better ways of doing things, but it invites a complete redefinition of what is possible, in favour of completely new experiences, values and benefits.
Examples like Linux and Wikipedia (and many others I can describe) demonstrate that a compelling case can be made, that for a growing number of “use cases”, the mass-gathering of amateurs working to professional standards, using tools which support the peer production of shared value, is the best way to do it! Wikipedia today proves beyond doubt that the best way to put an encyclopedia together is via a massive collaborative effort of amateur volunteers working to professional standards, motivated by an open source license, a meritocratic model of governance, and the sheer love of knowledge!
Linux and Wikipedia are not businesses; they’re movements. They don’t have customers; they have contributors. And in both cases many of the contributors care about something more than they care about the projects themselves: they care about the underlying open model. They are passionate about open source. Why? Because it fosters innovation. Because it brings co-labourers together for reasons of shared passion, not shared profit. Because it holds the potential to grow into something wonderful and surprising for all involved. Because it’s way more fun!
Now, I’m not predicting the overnight demise of corporations. At least not universally. But I’m seeing a growing number of movements of highly intelligent, passionate people, seeking alternatives to existing for-profit, “shareholders-first, customers-second” corporate models, and they’re chalking up some big early wins.
This disconnect between our fundamental human nature – our innate preference for an equal part to play and an equal say – and the last 100 years of “corporate rule” is very well captured in this short video by, funnily enough, Microsoft:
I have shown this video to many different audiences (including many groups of senior executives) over the last few years, and the knowing giggles and smiles are universal. None of us doubt the price the consumer has had to pay in the last 60 years or so of hegemonic rule between the modern corporation and the one-way broadcasting paradigm of the mainstream media. The “balance of power” did not favour the consumer.
But today, in many sectors, the open source movement is presenting a compelling challenge to reconsider the most basic construct of business: the division between consumer and producer. Thanks to the elegance of modern Internet and social media technology, those “formerly known as the consumer” are banding together and taking back production for themselves. It is my conviction that this re-appropriation of the means of production by the “consumer” is set to accelerate rapidly in the next decade, now that the Internet and social media tools have reached a point of sophistication where they are no longer impediments but common-place, indeed boring. As one commentator puts it, “Communications tools don’t get socially interesting until they get technologically boring.”
Consumers are using modern tools of peer production to do more and more amazing things. The fruit of such endeavours include the Open Source Software (OSS) movement, with such well-known projects as Linux, http://apache.org/, http://wordpress.org/, http://drupal.org/ and many more. More recently, the Open Source Hardware movement has gained significant momentum with popular projects including Arduino and Raspberry Pi in the electronics sector, Makerbot for 3D printing, and Wikispeed and the Global Village Construction Set bringing the vision of open source machinery to life.
In the case of Wikispeed, it is little short of remarkable that a group of volunteers and amateurs from around the world have been able to self-organise as distributed manufacturing and design teams, to refine and build a production-ready passenger car that does 100 miles to the gallon and meets all production safety standards!
In Scotland, a virtual mobile phone company called GiffGaff has completely given over their customer support function to their customers, who call themselves “members”. With the exception of account-related matters, all customer support issues are handled by a member-managed online forum. The average response time for support enquiries is 3 minutes. Customer satisfaction surveys consistently return a satisfaction rating of 90%. These would be dream results for any company, but GiffGaff consistently achieves these results using an open model where they have given customer service back to the customers themselves. Not only does it work; it works better than can be achieved by any competitors using a traditional model using paid customer service staff. Amazing. Somewhat disturbingly, there are GiffGaff customers who are so delighted, they’ve tattooed the logo on themselves. So I’m told.
So… in light of the above, how will your business invite customers so far into the company itself that they no longer think of themselves as customers but partners, advocates and members of a movement? Perhaps going down an open source or non-patent path is part of it, but the challenge is to write openness and transparency into the very genetic code of the company from the very start.
If this is done well, then the business will gain enormously from word-of-mouth marketing, and will not have to spend as much on above-the-line marketing. If this is done well, customers will feel more like brand advocates than consumers of a product. If this is done well, a spirit of innovation will be as meaningful for your customers as for the company itself.
It is nothing short of terrifying to consider something which, for the typical Harvard-weaned business executive, is incomprehensible: an inverted business model where you entrust tools of production to your customer, in order to unleash their passion and innovation.
In such an inverted model, the asset of the company is the brand and the custodianship of the IP around the product. There is no questioning the value of the Linux or Wikipedia brands. Nor is there any questioning of their market-share. But the road to profitability is different for everyone. Wikimedia Foundation’s expenses are covered by grants and donations. RedHat charges for professional services, and service level agreements, and does very well from that, even though their core product is open source software.
You’ll have to do some hard thinking about how the revenue will come. It’s not necessarily harder, it’s just different. But the trade-off is worth it.
If you have 30 minutes, you should watch Don explain what it’s all about:
I’ll conclude with some quick thoughts about the Law of Assymetrical Competition (!):
Yesterday, the majority of competition was symmetrical: between players with relatively evenly matched resources and capabilities. Think Ford v. GM, P&G v. Unilever, or K-Mart v. Sears. While new entrants have always challenged these incumbents, it’s different now:
- Rarely before have new entrants upset incumbents so decisively — to actually put them out of commission. (i.e. 244–yr old Britannica v. 11–yr old Wikipedia).
- Never have entrants dominated entire industries with such speed (i.e. Facebook’s domination of not just the social media industry but the entire Internet).
- Never before have so little resources been needed to compete (i.e. Airbnb v. hotels)
- Never before have so many revolutionaries threatened so many incumbents across a broad sweep of industries.
In short, the Law of Asymmetrical Competition states that closed, hierarchical organizations will lose to those entrants who collaborate with their user communities via networked technologies.
Love to hear your thoughts!