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| The New Economy is being driven by a profound development: Individuals and companies worldwide are being electronically linked, a process as significant as an organism developing a nervous system. So it's no surprise that the rules of the game are changing. Many of these principles have been stated before. But taken together they constitute a revolution in the rules of business. They are the basis upon which Business 2.0 is founded. |

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1. MATTER.
It matters less. It's a cliche, but it's the key to the New Economy: Processing information is dramatically more powerful and cost-effective than moving physical products. Increasingly, the value of a company is to be found not in its tangible assets, but in intangibles: people, ideas, and the strategic aggregation of key information-driven assets. Reality check: Despite very few physical assets and far fewer employees, a growing number of information-massaging companies have disproportionately large values. Consider the market cap of Yahoo!, which went from million to billion in two years. Why? Because the market believes the company has a lock on key intangibles that will build a giant profit stream in the future.
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2. SPACE.
Distance has vanished. The world is your customer-and your competitor. Geography has always played a key role in determining who competed with whom. Now your business can connect instantly with customers all over the globe. Flipside: You're exposed to worldwide competitors as well. The opportunity — and the threat — has never been greater. Reality check: During the last three years, Amazon.com has sold books to 1.5 million people in 160 countries. Out of an office in Seattle. Meanwhile, the giant U.S. telcos are starting to face competition from Internet telephony startups founded in Israel and Europe.
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3. TIME.
It's collapsing. Instant interactivity is critical, and is breeding accelerated change. In a world of instantaneous connection, there is a huge premium on instant response and the ability to learn from and adapt to the marketplace in real time. Winning companies accept a culture of constant change and are willing to constantly break down and reconstruct their products and processes — even the most successful ones. Reality check: Dell Computer has revolutionized PC sales by offering machines built directly from buyers' requests. Its lightning-fast inventory and purchase cycles terrify its competitors, and its analysis of customer orders allows it to adapt to trends ahead of the curve.
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4. PEOPLE.
They're the crown jewels... and they know it. Brain power can't be tallied on a ledger sheet, but it's the prime factor driving the New Economy. More than ever in history, huge value is being leveraged from smart ideas — and the winning technology and business models they create. So the people who can deliver them are becoming invaluable, and methods of employing and managing them are being transformed. Reality check: Microsoft successfully "locked in" one of the world's most talented work forces by giving them stock options worth literally billions of dollars.
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5. GROWTH.
It's accelerated by the network. The Internet can dramatically boost the adoption of a product or service by "viral marketing," network-enhanced word of mouth. Communication is so easy on the Web, product awareness spreads like wildfire. So once a company reaches critical mass, it can experience increasing returns leading to explosive growth. This principle means that in the New Economy, first-mover advantages are greater than ever. Reality check: Hotmail, a free email service backed by relatively modest funding, was able to grow a subscriber base of 10 million within two years. It was bought by Microsoft at the end of 1997 for a reported million, and today it is attracting more than 100,000 new sign-ups per day.
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6. VALUE.
It rises exponentially with market share. For products that help establish a platform or a standard, the network effect is even more pronounced: The more plentiful they become, the more essential each individual unit is, a striking exception to the economic rule that value comes from scarcity. In addition, some companies give away their products to establish market share, then sell linked services later on. Network effects were experienced historically in the adoption of telephones and fax machines. The difference today is that because everyone is linked, far more products and services gain their value from widespread network acceptance. Reality check: RealNetworks invested heavily in its streaming media players, distributed them free on the Web, and created a standard, which the markets now value as being worth hundreds of millions of dollars.
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7. EFFICIENCY.
The middleman lives. "Infomediaries" replace intermediaries. Traditional distributors and agents are seriously threatened by a networked economy in which buyers can deal directly with sellers. But a new brand of middleman is being created. As the amount of info-clutter grows, these infomediaries are needed to turn dumb data into usable information. They offer aggregated services, or intelligent customer assistance, or powerful technology-based buying aids, or an attractive, community-based buying environment. Reality check: Wireless Dimension simplifies the dizzying array of cell phone service options, pricing plans, and competitive promotions with a one-stop online shopping guide. Other infomediaries include America Online, Travelocity, CDnow, and virtually every ecommerce site on the Web.
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8. MARKETS.
Buyers are gaining dramatic new power — and sellers new opportunity. It's no longer necessary for your customer to walk down the street to compare prices and services. Your competitor may just be a mouse-click away. And intelligent software will help buyers find the best deal. So businesses that genuinely offer unique services or lower costs will flourish, benefiting from a flood of new buyers. Those that have relied on physical barriers to competition will fail. Reality check: The annoying haggling process of purchasing a car has been all but eliminated by online shopping services such as Auto-By-Tel, which allow you to research vehicle model and pricing information. Within 24 hours, you can be contacted with quotes from nearby dealers.
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9. TRANSACTIONS.
It's a one-on-one game. Information is easier to customize than hardgoods. The information portion of any good or service is becoming a larger part of its total value. Thus, suppliers will find it easier and more profitable to customize products, and consumers will begin to demand this sort of tailoring. Reality check: Office-product supplier Staples uses personalization to reduce the costs large companies incur when ordering office supplies electronically. Staples creates customized supply catalogs that contain only those items and prices negotiated in contracts, and retains lists of previously ordered items. In turn, Staples learns a great deal about its customers' preferences and uses that information to make customized special offers. Even paper clips can be sold one-on-one!
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10. IMPULSE.
Every product is available everywhere. The gap between desire and purchase has closed. The shelf space of the World Wide Web is unlike any other in that it has no bounds. Artificial constraints on choice are replaced by the ability to purchase the precise product you desire. The impulse to buy and the purchase itself used to be separated by a combination of physical and mental barriers. When you heard a song on the radio, you had to both remember the song or the artist and actually go to a store to purchase. Online, it's different. Discover a product you desire, and just hit the "buy" button. Consequence: The processes for marketing, sales, and fulfillment are merging. Reality check: A visitor to the Addicted To Noise Website who decides to buy a CD after seeing it reviewed can do so straightaway through a link with Music Boulevard — without leaving the media context (the ATN site) in which the demand was generated. No more month-long waits before the next visit to a music store. And the Internet's powerful audit loop means that the agent of demand generation — ATN — can be correctly identified, credited, and compensated.
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