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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: Mike Buckley who wrote (31503)	9/12/2000 7:23:37 PM
From: Judith Williams	Respond to of 54805

II. Relationship to Complex Systems In one of the early Santa Fe papers, Brian Arthur argued that economic sectors were ecologies and functioned as complex systems. Whereas economic analysis until relatively recently has been overwhelmingly deductive, inductive reasoning and trend extrapolation, Arthur contended, are better vehicles for capturing economic effects. The distinctions Arthur made between the New Economics and the Old (not to be confused with the banal Old/New Economy dichotomy) are roughly the following: 1. increasing returns vs. decreasing returns 2. biological model (dynamic) vs. physics model (linear) 3. externalities and differences drive model vs. model that is uncomfortable dealing with externalities and "smooths" differences Attributes of complex systems that networks share: 1. emergent 2. self-organizing 3. adaptive 4. dynamic An example of "self-organizing" and "emergent" might be the "last mile." Once the speed of the network and demand reach certain levels, "dark" fiber's darkness is largely a function of time and the pressures to solve the last mile grow so that its solution becomes "inevitable." A Problematic: Complex systems must be at critical mass for sustainability. Punctuated equilibrium governs their life cycle. It is subject to sharp swings, huge spurts when critical mass is achieved and equally pronounced nosedives when the system falls below critical mass. The technology adoption cycle, on the other hand, is usually described graphically as being distributed along a normal bell curve. Something is out of whack here. It tells me that the diagrams are purely illustrative of the concept and do not capture the dynamics or the timing. As with distortions that derive from transaction-based accounting, I suspect that critical mass is earlier than the graphic representations of the technology adoption cycle imply. If this is true, it has obvious impacts for both the GAP and CAP of dynamic networks. (continued; 2 of 3)

To: Mike Buckley who wrote (31503)	9/12/2000 7:45:31 PM
From: Judith Williams	Read Replies (2) \| Respond to of 54805

Questions these two perspectives raise for the networks project: 1. Can we get a handle on intangible assets--categorize them--and correlate them to knowledge earnings, intellectual earnings. Switching costs vs. patents vs. discontinuous innovation (natural monopoly?) are examples here. Lev suggests a working formula--netting out the cost of capital on tangible assets--but it would still take a good deal of digging and some strategic guesswork to attribute growth to specific i.a. If we used different networks for models--with different profiles for i.a.--the results might be revealing. 2. With a better handle on i.a. and how they behave--relationship to profitability, growth, time cycles--we might be able to plot specific technology adoption cycles. We could then see where critical mass is achieved and at what level. This would also give us hints about the interrelationships within the network--which nodes were particularly important to growth and achieving critical mass and why. 3. If networks are complex systems, then what event might cause as steep a crash as the ascent? Is it only a discontinuous innovation or are there other externalities to consider? What externalities are just general phenomena and which are specific to the network. 4. There is clearly an intricate relationship between i.a. and the networks. Does it vary from network to network? In what ways? Can one spot the differences and what do those differences mean for the magnitude of growth and its likely duration? What, in effect, do network effects say about CAP and GAP? Perhaps we could start with three networks from the G&K and Godzilla realms--maybe a Gorilla, a King, and a Godzilla--and analyze them individually. We could then compare the network effects and try to correlate them with causal factors. Enough grist from my mill. Please say loud and clear if these musings would head us in a direction you don't want to go. The network project--and the rigor G&K'ers bring to analysis--promises an exciting adventure. I think it also stands a strong chance of clarifying some critical issues and putting a good deal more than 60 cents in our collective pockets. Regards, Judith