Wow! I should go out of town more often... Here's a new interview with GG for those of you who appreciate him from my employers new newsletter.
"Every company has to be world champion of some set of tasks. Everything else should be outsourced."
George Gilder is an historian, an economist, and an Internet visionary whose grasp of technology helps to nourish an exceptionally inquisitive mind. A graduate of Harvard, Gilder has written ten books, including Men and Marriage (1972), Wealth and Poverty (1981), and Microcosm (1989). He is a former speechwriter for Richard Nixon, a former chairman of the Lehman Institute's Economics Roundtable, and a frequent contributor to Forbes ASAP. Gilder is the president of the Gilder Technology Group, whose newsletters and conferences provide insight into the promise of the Internet economy...
You often write about what you call pivotal technologies. What do you consider the most pivotal technology of the last decade?
GG: It's wavelength division multiplexing, or WDM. It's fiber optics. It's sending many bitstreams down a single fiber thread in a core one-tenth the width of a human hair. That technology has made bandwidth unlimited and has essentially displaced the advance of the computer industry as the driving force of the world economy. For the past 30 years, until the invention of WDM, computer advances were the most powerful force in the world economy; indeed, they doubled their own power every 18 months. They defined the era: We were in the "Computer Age." Now WDM is changing that definition with the ability to send hundreds, and eventually thousands, of bitstreams down a single fiber thread.
When will you and I be able to use it?
GG: Right now. Many phone calls use it already. Certainly GTE has WDM systems all over the place, but we are just at the very beginning of the cost efficiencies and performance that this technology will achieve. I'll give you some examples, because it's important to understand that this is a completely new age and most analysts don't grasp that at all. The way to think of it is, five years ago the whole world of telephone communications added up to about a trillion bits of information a second-a terabit per second. Today on any GTE fiber, it's possible to put about 160 different wavelengths. Using existing technology it would be possible to put a thousand wavelengths on a single thread the width of a human hair. That means ten terabits per second on every fiber thread. And that means every fiber thread in the network can carry ten times as much information as the entire global communications system carried five years ago.
Recently, Lucent announced that they can put 864 fibers in a single sheath, or a single cable, and this has been accomplished and is used under the Holland Tunnel in New York. It is in use today. That means that every fiber line of cable can hold 8.6 petabits a second, which is ten to the fifteenth power. That's worth focusing on because just a year or two ago the entire Internet conveyed about 8 petabits a month. In other words, every cable today is capable of carrying as much information in a second as the entire Internet carried two years ago in a month. Even now the Internet carries only 30 or 40 petabits a month.
This is an absolute explosion of bandwidth, and it corresponds to another phenomenon, which is a thousand-fold increase in the traffic on the Internet that we will see every three to five years. That's a million-fold increase every six to ten years. So what we have is the combination of an explosion of bandwidth and an explosion of traffic. Ultimately, the traffic will be driven by video teleconferencing; video will be as common as voice communications is today. That's what will fill up this fabulous new endowment that's been created by the miracle of WDM.
How will such rapid transmission of information, through the Internet and through corporate intranets, change the way companies do business?
GG: Generally, it will disaggregate corporations. The reasons for having the existing corporate structure will dissolve, because corporate structures of the past reflected patterns of ignorance: you had to have those hierarchical structures and rules because it was difficult to transmit information through the organization. If you can transmit information freely, within or outside the corporation, the difference between inside and outside declines, and more and more outsourcing can happen, and you can take advantage of what Joy's Law proclaims: The most intelligent people are rarely in your own company. That's Bill Joy of Sun Microsystems who said that. So it becomes increasingly important to devise company structures that can incorporate intelligence from outside, as well as contributions from outside. That means contributions from customers and contributions from users as well as contributions from other companies. It does fundamentally change the structure of companies. That is happening as we speak.
Is it fair to say that this technology changes the way corporations think about themselves?
GG: Yes. Corporations are increasingly outsourcing; they are increasingly marketing directly to customers; they know their customers more intimately than before. Peter Drucker made the point years ago that within a company there are no profit centers; there are only cost centers. Customers and suppliers determine where profit is made-in other words, people outside the company. This has always been the case, but today the outside is becoming increasingly a part of the day-to-day operation of the company. It is happening inside and outside the walls of the company.
So the corporate walls are coming down. But how far can those walls come down?
GG: They can come down until the transaction costs of outsourcing become greater than the advantages of outsourcing. What's happened is that the transaction cost of outsourcing has plummeted, and to do anything inside now you've got to do it faster and cheaper and better than you can on the outside. In the end you really reduce your corporation to those core functions that are strategically indispensable and represent your edge. Every company has to be world champion of some set of tasks; everything else should be outsourced.
Government laws almost always have effects different from their purposes. The purpose of insider trading laws was to create a level playing field for ordinary investors; the effect is actually to exclude ordinary investors from the kind of information that is necessary to trade intelligently, or to relegate this information to big corporations and venture capitalists. So we have these inside operators who are gaining the biggest portion of value from the new economy.
There has been a lot of talk about the Internet leveling the playing field, at least in the retail space. Do you see that happening?
GG: It's certainly leveling the ability to buy and sell. A company like eBay enables scores of thousands of people to set up small retailing operations, some of which grow to substantial size. Amazon is similarly trying to become an aggregation of small marketers. This is one way the leveling is working.
Will there come a time when all business and all customers are connected to each other all of the time? What would that do to supply and demand?
GG: The laws of supply and demand aren't very well understood. What's really going on out there is barter, but it is rendered fungible by the invention of money. Still, the essential process is barter: one person is exchanging his productive services for the productive services of somebody else. What the Internet does is make it much easier to conduct these transactions. You can do them all around the world if it's an information product. Anything that can be converted into bits and bytes can be found readily and transmitted instantly. It drastically reduces transaction costs. But all of that is really not changing laws of supply and demand; it's just accelerating growth by removing obstacles to transactions. My view has always been that, essentially, the material problem can be solved; material goods and services are abundant and can be transmitted to the needed point more quickly than ever before. In an age of material abundance scarcity migrates to the residual resource, and for us the residual resource is time. Internet businesses all have to focus on saving the customers' time. That's the key value here.
What are the long-term ramifications of the technological watershed?
GG: Well, the Internet's traffic is increasing about a thousand-fold every three to six years. That means that any Internet company today is currently confronting less than one tenth of one percent of its potential volume in five or six years. So it's clear that this is just the beginning. |
