Just Managing: Choose Wisely
For the past year, I've been writing about the resilience
of the old rules in this new economy. Sure, the wiring of the world
has changed many fundamental things about how people connect to
one another, but all along in business, the fundamental truths of
management are still the ones that matter most, especially among
Well, I lied.
Not intentionally, of course. I'd just like to acknowledge that
insisting that one set of rules, old or new, applies to all businesses
is silly. And so I concede that there are a few new rules to the
new economy - it's just that one should accept them with a grain
of salt the size of a boulder.
The following is a tale of when the new rules matter:
Last week, I met the founders of a nifty Boston-based startup
called Dotclick, a company that will live or die by the power of
"network effects." The law of network effects holds that the value
of a network increases exponentially as it grows, in contrast to
the laws of conventional economics, in which a fixed asset generates
decreasing returns over time.
In other words, smart businesspeople can create an asset whose
returns increase over time. Microsoft realized this with
its standard-setting software, which became an ever-higher margin
product once it achieved a critical mass of users that granted it
a de facto monopoly.
Dotclick presents itself as a marketing services company that
taps into computers used by people who access music online.
"Dotclick makes people's music collections - whether downloaded
from Napster or purchased from Tower Records - into a key
into the world of information about that music," says VP Ollie Jones.
The company has produced a plug-in application that members download
from the Web site and then hook up to their media players. The members
then construct an online identity, and their entire musical listening
experience essentially takes place in real-time, as a collaborative
event involving other Dotclick members. As the members listen to
music, their experience is tracked by the Dotclick software, which
captures how often people listen to a given song and how much they
say they like it. Members also can chat with one another about music
they're sampling. The software also captures the favorites lists
of members, compiling a profile of each person according to their
individual listening behavior (as opposed to the Soundscan system,
which tracks how many albums are sold on a weekly basis.)
Dotclick then can aggregate behavior and opinions and make individual
listening suggestions based on the collective wisdom of its members,
much like the recommendations feature on Amazon.com. The
company is able to do this because the core of its technology features
automated collaborative filtering, which "automates what happens
in real life," according to Dotclick founder Pam LaTulippe, who
worked with the technology while at Firefly, a much-heralded startup
out of MIT's Media Lab. Essentially, Dotclick's application finds
patterns in large collections of data, making intuitive leaps based
on seeing how, in this case, individual tastes match up with others.
The Dotclick community presents tremendous opportunities, not
merely to its members, but also to musicians, who link their Web
sites to Dotclick (as a few bands already have), or use the service
to form fan clubs or contact members with a preference for their
"It's a tool to help you generate hits if you are an artist because
it helps you find your fan base," says LaTulippe, pointing out that
rather than throwing mass marketing money at mass media, bands can
build hits by targeting likely fans and helping spawn great word-of-mouth.
Dotclick owes its success to dynamics best suited to the Web:
Fans form groups in a self-organizing, ground-up fashion. The group,
and not some authoritative leader, ultimately serves as intermediary.
Tastemakers do emerge from the pack, as individuals earn "karma"
points when others recognize their opinions. Yet again, these leaders
are selected by the group, on the basis of trust rather than power
How does the law of network effects apply to Dotclick? The company
simply needs to hit a critical mass of users, attention and input
from artists in order to become the pre-eminent Web destination
for music information. Gaining a robust community of users makes
success self-generating, as that community then functions as incentive
for more users, who will have a better shot at finding individuals
with their unique tastes, to join, and serves to attract bands to
It's too soon to say whether Dotclick will hit the tipping point
necessary to catalyze user participation, media attention and advertising
support into a thriving entity. The company launched the service
last month and is ramping up its marketing efforts.
The salient question today is not whether there are two different
laws of physics that govern the world of business - I believe there
are. The real challenge is figuring out when the new rules apply.
It's much the same as the new physics conceived by Niels Bohr, Werner
Heisenberg and Albert Einstein. Quantum physics is a brilliant and
fundamentally different model of life in the universe, but it applies
only to a minuscule subset of situations in the world. The Web corollary
is that there are new laws for doing business in the Internet Economy,
but one should apply them judiciously.
I'd venture to say that when companies are making new connections
and forming new communities, when they are basing their competitive
advantage on intellectual property that is both shared and unique,
when they are setting new standards (whether technological or human-based,
i.e. forming communities), then one can apply new rules. But there
will never be a simple litmus test.
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the companies that Tom discusses in the book
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