The Second Curve: Managing the Velocity of Change

1. The Second Curve: Managing the Velocity of Change Ian Morrison

2. The Second Curve First Curve Second Curve

3. The Curves • First Curve • The established way of doing business • Most of the current Profit and Revenue • Slowing in the long run • Second Curve • New business or new way of doing business • Radically different from the first • Source of future growth

4. Drivers of the Second Curve • New Technologies • Faster, better, cheaper • New Consumers • Anything, any time, any place • New Emerging Geographic markets • Asia, Latin America, Eastern Europe

5. New Consumers • Better educated • Discriminating • Skeptical and demanding • Better informed • Individualistic • With changing values

6. Public’s Satisfaction with Industry Decreases: Managed Care Loses More Ground than Others

7. Births (millions) The Baby Boom The Echo Boom The Greatest Generation The Echo Bust The Baby Bust The Forgotten Few

8. California Demographics: Everyone’s a Minority

9. New Technology • Computers • Communications • Internet

10. America’s Technology Boom 1997-2000 • Demographics of the Baby Boom • The 401 (K)ing of America • The NASDAQ Wealthy: betting with the house’s money • Day trading by individuals and institutions • The Real Y2K Bug • Dot.Commers had free money to buy servers, ad space, brands, people, and real estate

11. The Ugly Correction 2000-2001 • The Internet is the engine of change and productivity or we have a problem • Forced the Establishment into e-business, but the sense of urgency has waned • If it ends it will end badly, but……. • This is not 1929 yet because • Leverage is less • Markets are more regulated • Instruments are more diverse

12. The Long Boom • Openness in technology, trade and communication • New technology • Internet and E-commerce • Genetics and genomics • Nanotechnology • Markets and networks over government and hierearchies

13. Knowledge as Value Product Price per Pound Pentium III 800 Mhz $42,893.00 Viagra 11,766.00 Gold 4,827.20 Hermes Scarf 1,964.29 Palm V 1,726.92 Saving Private Ryan on DVD 874.75 Cigarettes 100.00 Mercedes-Benz E-Class Sedan 18.98 Chevrolet Cavalier Sedan 6.76 Hot-Rolled Steel 0.19 Source: Fortune, March 20, 2000 p. 68

14. The Internet Computers Communications Commerce Content Community

15. Americans On Line Source: Harris Interactive, 2001

16. The growth of Internet access worldwide Number of adults with Internet access (millions) = 5% of pop’l = 9% of pop’l (Source: eMarketer, eGlobal Report, March 2000)

17. Comparative estimates by region (2000) Number of adults with Internet access (millions) (Source: NUA Internet Surveys, November 2000)

18. Internet access for OECD nations Percent of adults with Internet access (Source: OECD, 2000)

19. Technology Diffusion • Drugs, sex, and rock ’n roll • B 2 B usually before B 2 C • Media accumulate

20. Morrison’s Five Laws of the Internet • Law 1: The Mother of all Commoditizers • Law 2: The margin is captured by the consumer not the innovator • Law 3: It is a 1 to 1 medium but the race is on to build mass brands • Law 4: The Alberta Tar Sands Model of internet advertising • Law 5: There is a lot of physical fulfillment in e-commerce

21. Business to Business Infrastructure Players • Hard Infrastructure: Cisco, Nortel • Soft Infrastructure: Ariba, Oracle, I 2 • New Plumbers: Razorfish, Sapient • Hosters: Exodus, Worldcom • Market Makers: Commerce One, FreeMarkets • Vertical Markets: Neoforma, Metalsite • Toolmakers: Kana, Siebel, BEA Systems

22. Market Capitalization of B2B Players Selected Market Capitalizations (Billions of Dollars) March 2000 March 2001 I-2 26.7 6.4 Exodus 25.7 4.7 Ariba 25.6 2.6 Commerce One 15.7 2.1 Kana Communications 7.2 0.2 FreeMarkets 6.6 0.4

23. Alternative B 2 B Models • Electronic Spot Markets • E-Brokers • Demand Collection Systems • Reverse Auctions • Auctions • Electronic Marketplaces

24. Business to Business Models Sellers Buyers Auctions

25. Business to Business Models Sellers Buyers DCS

26. Business to Business Models Sellers Buyers Auctions DCS E-Markets

27. First Curve Capital Producer Atlantic Japan International Trade Computers Money Market Segments Second Curve Knowledge Consumer Pacific China Electronic Commerce Internet People Business Ecosystems Markets: From First Curve to Second Curve

28. First Curve Mechanistic Engineering Corporations Horizontal Integration Business Processes Second Curve Organic Ecology Individuals and Networks Virtual Integration Culture Organizations: From First Curve to Second Curve

29. The 21st Century Organization • Hyper-Focused Firm • Cultural Juggernaut • Extended Enterprise • Shared-Risk Alliance • The Object Organization • The Fishnet Organization • The Self Generating Organization

30. First Curve Hard-Working Security Current Career Faith Loyalty Second Curve Hyper-effective Uncertainty Future Career Hope Courage Individuals: From First Curve to Second Curve

31. Issues and Impacts • Commoditization or Mass Customization • The Rise of Perfect Markets • Powerful New Intermediaries • Re-intermediation versus disintermediation • Digital cannibalization of overhead • Don’t disrespect the First Curve (2000) • Don’t disrespect the Second Curve (2001) • Learn to play both curves

32. Staying on the First Curve • Own the First Curve • Slide down the demand curve into oblivion • Export the First Curve • Kill the Second Curve • If at first you don’t succeed, rename it

33. Jumping to the Second Curve • Eat the Corporate Lunch • Turn a small base into big bucks • Develop a brass neck • Look for exponential marketing • Take up paradigm surfing

34. Playing Both Curves • Redefine the Value Chain • Create Second Curve Portfolios • Isolate, incubate, insulate, integrate • Prune the Second Curve • Shift Curves based on culture and competency • Organize for Two Curve success: • Scale, incentives, organization, people