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Many executives i meet think that the stock market shakeout in dot-coms is a major setback for Internet-based businesses. Startups with nonexistent business models have gone bust and the Amazons are having their market caps slashed. Yes, the Internet will change everything, they tell me, but at least now we know what the Net looks like and what forms of commerce it will sustain.
Wrong. The turmoil unleashed by the Net during the past five years pales in comparison to what will happen in the next five.
I call the next phase of Internet development the "Hypernet." Mobile computing devices, broadband access, wireless networks, and computing power embedded in everything from bicycles to factory tools are converging into a vast global network - a Hypernet - that will fuel exponential change in business model innovation. In fact, the Hypernet is to the Internet what the Internet was to early proprietary computer networks.
It will further expand the boundaries of firms, alter corporate and customer behavior in unforeseen ways, and put at risk traditional profit and revenue models.
The expression we will hear repeatedly in the future is that we are on "the second half of the chessboard," a phrase coined by the brilliant inventor and author Ray Kurzweil.
He recounts how one emperor of China was so delighted by the game of chess that he offered the game's inventor anything he wanted in the kingdom. The inventor replied that he wanted only rice.
"I would like one grain of rice on the first square of the chessboard, two grains of rice on the second square, four grains of rice on the third square," and so on. Thinking this would amount to little, the emperor readily agreed.
But fulfilling the inventor's request is impossible. If you were to double the grains of rice with each square, the final square would require 18 million billion grains of rice - enough to blanket the world. While the amounts of rice are minuscule in the beginning, they become substantial - about four billion grains - by halfway through the chessboard. Kurzweil originally made his comparison to computers in the early 1990s, and noted that processor power had already doubled 32 times since the first computers in the early 1940s.
We are on the second half of the board. The gains achieved in digital technologies grow more astounding by the week. And for many technologies there is no end to the gains in sight.
Transistors will continue to shrink, processor power will continue to double and redouble, chips will be embedded into every object, Internet bandwidth will continue to expand, and humans will create more and more Web-based solutions to everyday problems.
The Hypernet of tomorrow will comprise a billion Net-connected mobile phones and billions of networked game-consoles, handhelds, toys, and information appliances.
Devices are already proliferating and morphing into a bewildering variety, and are approaching throwaway prices. Soon we will be awash in gadgets such as the HitClips Music Player, a small, cheap Walkman-like device for kids that clips to clothing and plays through an earphone. Music is bought prerecorded on inexpensive postage-stamp size chips or downloaded directly from the Net. Or how about a GPS locator for your teenager? For $25 a month Kid Track calls your mobile phone if your child moves outside a specified area.
Yesterday's late-show jokes about ubiquitous computing - like your refrigerator calling Weight Watchers when you grab your third beer of the day - are becoming today's reality. Computing is so ubiquitous that the computer is receding into the background.
Technology adoption rates are blindingly fast, because happy consumers use the Internet to tell friends and family around the world about the great new product or service they have discovered. Napster is the highest profile example, but there are many others.
No industry will be left untouched. We are entering a world where getting customers' attention will become even more difficult. Your mobile customers will pull goods, services, and information from the network whenever the impulse strikes, while blocking your attempts to push communications at them.
Customers will be accustomed to full customization and immediate gratification. They won't want to be forced to settle for the model of car the dealer happens to have on the lot; they will want a new vehicle built to their specifications and delivered to their door within a few days. Firms will need to change their culture and technology, and add new partners to tackle these challenges. Industries such as banking will turn upside down as new forms of money such as PayPal proliferate. New financial intermediaries will come between customers and bankers, brokers and insurers.
This is all going to occur quickly. More than 400 million people worldwide already use wireless phones. By 2005, global companies will generate up to 20 percent of their business through mobile phones and other wireless devices. Industry observers in Europe and Asia estimate that by 2004, 40 percent of business-to-consumer e-commerce transactions in their regions will be done through por-table, wireless devices. For example, In Finland you can already punch in a few numbers on your mobile phone keypad to pay for a can of soda from a vending machine.
Business model innovation will be essential in the Hypernet, to capture the value created by new kinds of transactions and new ways of managing existing transactions. The pace of innovation will accelerate, and obsolete enterprises will quickly disappear.
Don Tapscott (dtapscott@digital4sight.com) is chair of Digital 4Sight and coauthor of (Harvard Business School Press, 2000).
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