Several years ago, Lester Thurow made this observation and posed several timely questions: “The old foundations of success are gone. For all of human history the source of success has been controlling natural resources — land, gold, oil. Suddenly the answer is “knowledge.” The king of the knowledge economy, Bill Gates owns no land, no gold or oil, no industrial process. How does one use knowledge to build wealth? How do societies have to be reorganized to generate a wealth-enhancing knowledge environment? How do they incubate the entrepreneurs necessary to bring about change and create wealth? What skills are needed? The knowledge-based economy is asking new questions, giving new answers, and developing new rules for success.”[i]
This statement highlights several important characteristics of the information economy. The assets themselves are often intangible. This inherent instability makes the market even more volatile. Early movers such as America Online were able to gain a strong foothold by giving away their software and charging a monthly fee for their service. But within a few years, market pressures forced them to change their model. Luckily, they have been able to adapt and maintain their value. Other companies, such as Bloomberg, Dow-Jones, Reuters, and Quote.com, provide real-time, aggregated data for the financial services industry. News is delivered from every major news source through the Internet. And blogs have becomes sources of news as well as forums for questioning the veracity of information.
Many back-office and outsourcing businesses have grown out of virtual connectivity. Services such as bookkeeping and answering the phone that were historically performed within the same building are now done in other cities or continents. Today, some are surprised to learn that most taxes are prepared and X rays are read in India.
Given this relentless pressure to adapt our business models, companies are embracing innovative technologies and developing new strategies for capturing value.
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[i] Lester Thurow, Building Wealth, http://www.theatlantic.com/issues/99jun/9906thurow.htm.