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What was it that stimulated investors to believe that demand for Internet usage and Internet-related products would be infinite? The short answer is digitization. Once the PC-Windows revolution demonstrated to everyone the value of being able to digitize information and manipulate it on computers and word processors, and once the browser brought the Internet alive and made Web pages sing and dance and display, everyone wanted everything digitized as much as possible so they could send it to someone else down the Internet pipes. Thus began the digitization revolution. Digitization is that magic process by which words, music, data, films, files, and pictures are turned into bits and bytes-combinations of Is and Os-that can be manipulated on a computer screen, stored on a microprocessor, or transmitted over satellites and fiber-optic lines. It used to be the post office was where I went to send my mail, but once the Internet came alive, I wanted my mail digitized so I could e-mail it. Photography used to be a cumbersome process involving film coated with silver dug up from mines halfway across the world. I used to take some pictures with my camera, then bring the film to the drugstore to be sent off to a big plant somewhere for processing. But once the Internet made it possible to send pictures around the world, attached to or in e-mails, I didn't want to use silver film anymore. I wanted to take pictures in the digital format, which could be uploaded, not developed. (And by the way, I didn't want to be confined to using a camera to take them. I wanted to be able to use my cell phone to do it.) I used to have to go to Barnes & Noble to buy and browse books, but once the Internet came alive, I wanted to browse for books digitally on Amazon.com as well. I used to go to the library to do research, but now I wanted to do it digitally through Google or Yahoo!, not just by roaming the stacks. I used to buy a CD to listen to Simon and Garfunkel-CDs had already replaced albums as a form of digitized music-but once the Internet came alive, I wanted those music bits to be even more malleable and mobile. I wanted to be able to download them into an iPod. In recent years the digitization technology evolved so I could do just that.
Well, as investors watched this mad rush to digitize everything, they said to themselves, “Holy cow. If everyone wants all this stuff digitized and turned into bits and transmitted over the Internet, the demand for Web service companies and the demand for fiber-optic cables to handle all this digitized stuff around the world is going to be limitless! You cannot lose if you invest in this!”
And thus was the bubble born.
Overinvestment is not necessarily a bad thing-provided that it is eventually corrected. I'll always remember a news conference that Microsoft chairman Bill Gates held at the 1999 World Economic Forum in Davos, at the height of the tech bubble. Over and over again, Gates was bombarded by reporters with versions of the question, “Mr. Gates, these Internet stocks, they're a bubble, right? Surely they're a bubble. They must be a bubble?” Finally an exasperated Gates said to the reporters something to the effect of, “Look, you bozos, of course they're a bubble, but you're all missing the point. This bubble is attracting so much new capital to this Internet industry, it is going to drive innovation faster and faster.” Gates compared the Internet to the gold rush, the idea being that more money was made selling Levi's, picks, shovels, and hotel rooms to the gold diggers than from digging up gold from the earth. Gates was right: Booms and bubbles may be economically dangerous; they may end up with many people losing money and a lot of companies going bankrupt. But they also often do drive innovation faster and faster, and the sheer overcapacity that they spur-whether it is in railroad lines or automobiles-can create its own unintended positive consequences.
That is what happened with the Internet stock boom. It sparked a huge overinvestment in fiber-optic cable companies, which then laid massive amounts of fiber-optic cable on land and under the oceans, which dramatically drove down the cost of making a phone call or transmitting data anywhere in the world.
The first commercial installation of a fiber-optic system was in 1977, after which fiber slowly began to replace copper telephone wires, because it could carry data and digitized voices much farther and faster in larger quantities. According to Howstuffworks.com, fiber optics are made up of strands of optically pure glass each “as thin as a human hair,” which are arranged in bundles, called “optical cables,” to carry digitized packets of information over long distances. Because these optical fibers are so much thinner than copper wires, more fibers can be bundled into a given diameter of cable than can copper wires, which means that much more data or many more voices can be sent over the same cable at a lower cost. The most important benefit of fiber, though, derives from the dramatically higher bandwidth of the signals it can transport over long distances. Copper wires can carry very high frequencies too, but only for a few feet before the signal starts to degrade in strength due to certain parasitic effects. Optical fibers, by contrast, can carry very high-frequency optical pulses on the same individual fiber without substantial signal degradation for many, many miles.
The way fiber-optic cables work, explains one of the manufacturers, ARC Electronics, on its Web site, is by converting data or voices into light pulses and then transmitting them down fiber lines, instead of using electronic pulses to transmit information down copper lines. At one end of the fiber-optic system is a transmitter. The transmitter accepts coded electronic pulse information-words or data-coming from copper wire out of your home telephone or office computer. The transmitter then processes and translates those digitized, electronically coded words or data into equivalently coded light pulses. A light-emitting diode (LED) or an injection-laser diode (ILD) can be used to generate the light pulses, which are then funneled down the fiber-optic cable. The cable functions as a kind of light guide, guiding the light pulses introduced at one end of the cable through to the other end, where a light-sensitive receiver converts the pulses back into the electronic digital Is and Os of the original signal, so they can then show up on your computer screen as e-mail or in your cell phone as a voice. Fiber-optic cable is also ideal for secure communications, because it is very difficult to tap.
It was actually the coincidence of the dot-com boom and the Telecommunications Act of 1996 that launched the fiber-optic bubble. The act allowed local and long-distance companies to get into each other's businesses, and enabled all sorts of new local exchange carriers to compete head-to-head with the Baby Bells and AT&T in providing both phone services and infrastructure. As these new phone companies came online, offering their own local, long-distance, international, data, and Internet services, each sought to have its own infrastructure. And why not? The Internet boom led everyone to assume that the demand for bandwidth to carry all that Internet traffic would double every three months-indefinitely. For about two years that was true. But then the law of large numbers started to kick in, and the pace of doubling slowed. Unfortunately, the telecom companies weren't paying close attention to the developing mismatch between demand and reality. The market was in the grip of an Internet fever, and companies just kept building more and more capacity. And the stock market boom meant money was free! It was a party! So every one of these incredibly optimistic scenarios from every one of these new telecom companies got funded. In a period of about five or six years, these telecom companies invested about $ 1 trillion in wiring the world. And virtually no one questioned the demand projections.
Few companies got crazier than Global Crossing, one of the companies hired by all these new telecoms to lay fiber-optic cable for them around the world. Global Crossing was founded in 1997 by Gary Winnick and went public the next year. Robert Annunziata, who lasted only a year as CEO, had a contract that the Corporate Library's Nell Minow once picked as the worst (from the point of view of shareholders) in the United States. Among other things, it included Annunziata's mother's first-class airfare to visit him once a month. It also included a signing bonus of 2 million shares of stock at $10 a share below market.
Henry Schacht, a veteran industrialist now with E. M. Warburg, Pincus & Co., was brought in by Lucent, the successor of Western Electric, to help manage it through this crazy period. He recalled the atmosphere: “The telecom deregulation of 1996 was hugely important. It allowed competitive local exchange carriers to build their own capacities and sell in competition with each other and with the Baby Bells. These new telecoms went to companies like Global Crossing and had them install fiber networks for them so they could compete at the transport level with AT&T and MCI, particularly on overseas traffic... Everyone thought this was a new world, and it would never stop. [You had] competitive firms using free capital, and everyone thought the pie would expand infinitely. So [each company said,] 'I will put my fiber down before you do, and I will get a bigger share than you.' It was supposed to be just a vertical growth line, straight up, and we each thought we would get our share, so everybody built to the max projections and assumed that they would get their share.”
It turned out that while business-to-business and e-commerce developed as projected, and a lot of Web sites that no one anticipated exploded-like eBay, Amazon, and Google-they still devoured only a fraction of the capacity that was being made available. So when the dotcom bust came along, there was just way too much fiber-optic cable out there. Long-distance phone rates went from $2 a minute to 100. And the transmission of data was virtually free. “The telecom industry has invested itself right out of a business,” Mike McCue, chief operations officer of Tellme Networks, a voice-activated Internet service, told CNET News.com in June 2001. “They've laid so much fiber in the ground that they've basically commoditized themselves. They are going to get into massive price wars with everyone and it's going to be a disaster.”
It was a disaster for many of the companies and their investors (Global Crossing filed for bankruptcy in January 2002, with $12.4 billion in debt), but it turned out to be a great boon for consumers. Just as the national highway system that was built in the 1950s flattened the United States, broke down regional differences, and made it so much easier for companies to relocate in lower-wage regions, like the South, because it had become so much easier to move people and goods long distances, so the laying of global fiber highways flattened the developed world. It helped to break down global regionalism, create a more seamless global commercial network, and made it simple and almost free to move digitized labor-service jobs and knowledge work-to lower-cost countries.
(It should be noted, though, that those fiber highways in America tended to stop at the last mile-before connecting to households. While a huge amount of long-distance fiber cable was laid to connect India and America, virtually none of these new U.S. telecom companies laid any substantial new local loop infrastructure, due to a failure of the 1996 telecom deregulation act to permit real competition in the local loop between the cable companies and the telephone companies. Where the local broadband did get installed was in office buildings, which were already pretty well served by the old companies. So this pushed prices down for businesses-and for Indians who wanted to get online from Bangalore to do business with those businesses-but it didn't create the sort of competition that could bring cheap broadband capability to the American masses in their homes. That has started happening only more recently.)
The broad overinvestment in fiber cable is a gift that keeps on giving, thanks to the unique nature of fiber optics. Unlike other forms of Internet overinvestment, it was permanent: Once the fiber cables were laid, no one was going to dig them up and thereby eliminate the overcapacity. So when the telecom companies went bankrupt, the banks took them over and then sold their fiber cables for ten cents on the dollar to new companies, which continued to operate them, which they could do profitably, having bought them in a fire sale. But the way fiber cable works is that each cable has multiple strands of fiber in it with a potential capacity to transmit many terabits of data per second on each strand. When these fiber cables were originally laid, the optical switches-the transmitters and receivers-at each end of them could not take full advantage of the fiber's full capacity. But every year since then, the optical switches at each end of that fiber cable have gotten better and better, meaning that more and more voices and data can be transmitted down each fiber. So as the switches keep improving, the capacity of all the already installed fiber cables just keeps growing, making it cheaper and easier to transmit voices and data every year to any part of the world. It is as though we laid down a national highway system where people were first allowed to drive 50 mph, then 60 mph, then 70 mph, then 80 mph, then eventually 150 mph on the same highways without any fear of accidents. Only this highway wasn't just national. It was international.
“Every layer of innovation gets built on the next,” said Andreessen, who went on from Netscape to start another high-tech firm, Opsware Inc. “And today the most profound thing to me is the fact that a fourteen-year-old in Romania or Bangalore or the Soviet Union or Vietnam has all the information, all the tools, all the software easily available to apply knowledge however they want. That is why I am sure the next Napster is going to come out of left field. As bioscience becomes more computational and less about wet labs, and as all the genomic data becomes easily available on the Internet, at some point you will be able to design vaccines on your laptop.”
I think Andreessen touches on what is unique about the flat world and the era of Globalization 3.0. It is going to be driven by groups and individuals, but of a much more diverse background than those twelve scientists who made up Andreessen's world when he created Mosaic. Now we are going to see the real human mosaic emerge-from all over the world, from left field and right field, from West and East and North and South-to drive the next generation of innovation. Indeed, a few days after Andreessen and I talked, the following headline appeared on the front page of The New York Times (July 15, 2004): “U.S. Permits 3 Cancer Drugs from Cuba.” The story went on to say, “The federal government is permitting a California biotechnology company to license three experimental cancer drugs from Cuba-making an exception to the policy of tightly restricting trade with that country.” Executives of the company, CancerVex, said that “it was the first time an American biotechnology company had obtained permission to license a drug from Cuba, a country that some industry executives and scientists say is surprisingly strong in biotechnology for a developing nation... More than $1 billion was spent over the years to build and operate research institutes on the west side of Havana staffed by Cuban scientists, many of them educated in Europe.”
Just to summarize again: The PC-Windows flattening phase was about me interacting with my computer and me interacting with my own limited network inside my own company. Then came along this Internet-e-mail-browser phase, and it flattened the earth a little bit more. It was about me and my computer interacting with anyone anywhere on any machine, which is what e-mail is all about, and me and my computer interacting with anybody's Web site on the Internet, which is what browsing is all about. In short, the PC-Windows phase begat the Netscape browsing-e-mail phase and the two together enabled more people to communicate and interact with more other people anywhere on the planet than ever before.
But the fun was just beginning. This phase was just the foundation for the next step in flattening the flat world.
When I asked him to elaborate, Hyten sketched out for me how animated films are produced today through a global supply chain. I understood immediately why he too had concluded that the world is flat. “At Wild Brain,” he said, “we make something out of nothing. We learn how to take advantage of the flat world. We are not fighting it. We are taking advantage of it.”
Hyten invited me to come and watch them produce a cartoon segment to really appreciate how flat the world is, which I did. The series they were working on when I showed up was for the Disney Channel and called Higglytown Heroes. It was inspired by all the ordinary people who rose to the challenge of 9/11. Higglytown “is the typical 1950s small town,” said Hyten. “It is Pleasantville. And we are exporting the production of this American small town around the world-literally and figuratively. The foundation of the story is that every person, all the ordinary people living their lives, are the heroes in this small town-from the schoolteacher to the pizza delivery man.”
This all-American show is being produced by an all-world supply chain. “The recording session,” explained Hyten, “is located near the artist, usually in New York or L.A., the design and direction is done in San Francisco, the writers network in from their homes (Florida, London, New York, Chicago, LA, and San Francisco), and the animation of the characters is done in Bangalore with edits from San Francisco. For this show we have eight teams in Bangalore working in parallel with eight different writers. This efficiency has allowed us to contract with fifty 'stars' for the twenty-six episodes. These interactive recording/writing/ animation sessions allow us to record an artist for an entire show in less than half a day, including unlimited takes and rewrites. We record two actors per week. For example, last week we recorded Anne Heche and Smokey Robinson. Technically, we do this over the Internet. We have a VPN [virtual private network] configured on computers in our offices and on what we call writers' 'footballs,' or special laptop computers that can connect over any cat-5 Ethernet connection or wireless broadband connection in the 'field.' This VPN allows us to share the feed from the microphone, images from the session, the real-time script, and all the animation designs amongst all the locations with a simple log-in. Therefore, one way for you to observe is for us to ship you a football. You connect at home, the office, most hotel rooms, or go down to your local Starbucks [which has wireless broadband Internet access], log on, put on a pair of Bose noise-reduction headphones, and listen, watch, read, and comment. 'Sharon, can you sell that line a little more?' Then, over the eleven-week production schedule for the show, you can log in twenty-four hours a day and check the progress of the production as it follows the sun around the world. Technically, you need the 'football' only for the session. You can use your regular laptop to follow the 'dailies' and 'edits' over the production cycle.”
I needed to see Wild Brain firsthand, because it is a graphic example of the next layer of innovation, and the next flattener, that broadly followed on the Berlin Wall-Windows and Netscape phases. I call this the “work flow phase.” When the walls went down, and the PC, Windows, and Netscape browser enabled people to connect with other people as never before, it did not take long before all these people who were connecting wanted to do more than just browse and send e-mail, instant messages, pictures, and music over this Internet platform. They wanted to shape things, design things, create things, sell things, buy things, keep track of inventories, do somebody else's taxes, and read somebody else's X-rays from half a world away. And they wanted to be able to do any of these things from anywhere to anywhere and from any computer to any computer-seamlessly. The wall-Windows-Netscape phases paved the way for that by standardizing the ways words, music, pictures, and data would be digitized and transported on the Internet-so e-mail and browsing became a very rich experience.
But for all of us to go to the next stage, to get more out of the Internet, the flattening process had to go another notch. We needed two things. We needed programmers to come along and write new applications— new software-that would enable us really to get the maximum from our computers as we worked with these digitized data, words, music, and pictures and shaped them into products. We also needed more magic pipes, more transmissions protocols, that would ensure that everyone's software applications could connect with everyone else's software applications. In short, we had to go from an Internet that just connected people to people, and people to their own applications, to an Internet that could connect any of my software programs to any of your software programs. Only then could we really work together.
Think of it this way: In the beginning, work flow consisted of your sales department taking an order on paper, walking it over to your shipping department, which shipped the product, and then someone from shipping walking over to billing with a piece of paper and instructing them to churn out an invoice to the customer. As a result of the Berlin Wall-Windows-Netscape phases, work flow took a huge leap forward. Now your sales department could electronically take that order, e-mail it to the shipping department within your own company, and then have the shipping department send out the product to the customer and automatically spit out a bill at the same time. The fact that all the departments within your company were seamlessly interoperable and that work could flow between them was a great boost to productivity-but this could happen only if all your company's departments were using the same software and hardware systems. More often than not, back in the 1980s and early 1990s, a company's sales department was running Microsoft and the inventory department was running Novell, and they could not communicate with each other. So work did not flow as easily as it should.
We often forget that the software industry started out like a bad fire department. Imagine a city where every neighborhood had a different interface for connecting the fire hose to the hydrant. Everything was fine as long as your neighborhood fire department could handle your fire. But when a fire became too big, and the fire engines from the next neighborhood had to be called in, they were useless because they could not connect their hoses to your hydrants.
For the world to get flat, all your internal departments-sales, marketing, manufacturing, billing, and inventory-had to become interoperable, no matter what machines or software each of them was running. And for the world to get really flat, all your systems had to be interoperable with all the systems of any other company. That is, your sales department had to be connected to your supplier's inventory department and your supplier's inventory department had to be seamlessly connected to its supplier's supplier, which was a factory in China. That way, when you made a sale, an item was automatically shipped from your supplier's warehouse, and another item was automatically manufactured by your supplier's supplier, and a bill was generated from your billing department. The disparate computer systems and software applications of three distinctly different companies had to be seamlessly interoperable so that work could flow between them.
In the late 1990s, the software industry began to respond to what its consumers wanted. Technology companies, through much backroom wrangling and trial and error, started to forge more common Web-based standards, more integrated digital plumbing and protocols, so that anyone could fit his hose-his software applications-onto anyone else's hydrant.
This was a quiet revolution. Technically, what made it possible was the development of a new data description language, called XML, and its related transport protocol, called SOAP. IBM, Microsoft, and a host of other companies contributed to the development of both XML and SOAP, and both were subsequently ratified and popularized as the Internet standards. XML and SOAP created the technical foundation for software program-to-software program interaction, which was the foundation for Web-enabled work flow. They enabled digitized data, words, music, and photos to be exchanged between diverse software programs so that they could be shaped, designed, manipulated, edited, reedited, stored, published, and transported-without any regard to where people are physically sitting or what computing devices they are connecting through.
Once this technical foundation was in place, more and more people started writing work flow software programs for more and more different tasks. Wild Brain wanted programs to make animated films with a production team spread out around the world. Boeing wanted them so that its airplane factories in America could constantly resupply different airline customers with parts, through its computer ordering systems, no matter what country those orders came from. Doctors wanted them so that an X-ray taken in Bangor could be read in a hospital in Bangalore, without the doctor in Maine ever having to think about what computers that Indian hospital had. And Mom and Dad wanted them because they wanted their e-banking software, e-brokerage software, office e-mail, and spreadsheet software to all work off their home laptop and be able to interface with their office desktop. And once everyone's applications started to connect to everyone else's applications-which took several years and lot of technology and brainpower to make happen-work could not only flow like never before, but it could be chopped up and disaggregated like never before and sent to the four corners of the world. This meant that work could flow anywhere. Indeed, it was the ability to enable applications to speak to applications, not just people to speak to people, that would soon make outsourcing possible. Thanks to different kinds of Web services-work flow, said Craig Mundie, Microsoft's chief technology officer, “the industry created a global platform for a global workforce of people and computers.”
The vast network of underground plumbing that made it possible for all this work to flow has become quite extensive. It includes all the Internet protocols of the previous era, like TCP/IP and others, which made browsing and e-mail and Web sites possible. It includes newer tools, like XML and SOAP, which enabled Web applications to communicate with each other more seamlessly, and it includes software agents known as middleware, which serves as an intermediary between wildly diverse applications. The nexus of these technologies has been a huge boon to innovation and a huge reducer of friction between companies and applications. Instead of everyone trying to control the fire hydrant nozzle, they made all the nozzles and hoses the same, creating a much bigger market that stretched across every neig
hborhood of the world. Then companies started to compete instead over the quality of the hose, the pump, and the fire truck. That is, they competed over who could make the most useful and nifty applications. Said Joel Cawley, the head of IBM's strategic planning unit, “Standards don't eliminate innovation, they just allow you to focus it. They allow you to focus on where the real value lies, which is usually everything you can add above and around the standard.”
I found this out writing my last book. Once Microsoft Word got established as the global standard, work could flow between people on different continents much more easily, because we were all writing off the same screen with the same basic toolbar. When I was working on my first book, From Beirut to Jerusalem, in 1988,1 spent part of my year's leave in the Middle East and had to take notes with pen and paper, as it was the pre-laptop and pre-Microsoft Word era. When I wrote my second book, The Lexus and the Olive Tree, in 1998, I had to do some of the last-minute editing from the computer behind the front desk at a Swiss hotel in Davos on a German version of Microsoft Word. I could not understand a single word, a single command function, on the toolbar of the German version of Word. But by 1998, I was so familiar with the Word for Windows writing program, and where the various on-screen icons were, that I was able to point and click my way through the editing on the German version and type my corrections with the English letters on the German keyboard. Shared standards are a huge flattener, because they both force and empower more people to communicate and innovate over much wider platforms.
Another of my favorite examples of this is PayPal, which enabled eBay's e-commerce bazaar to become what it is today. PayPal is a money transfer system founded in 1998 to facilitate C2C (customer-to-customer) transactions, like a buyer and seller brought together by eBay. According to the Web site ecommerce-guide.com, using PayPal, anyone with an e-mail address can send money to anyone else with an e-mail address, whether the recipient has a PayPal account or not. PayPal doesn't even care whether a commercial transaction is taking place. If someone in the office is organizing a party for someone else and everyone needs to chip in, they can all do it using PayPal. In fact, the organizer can send everyone PayPal reminders by e-mail with clear instructions as to how to pay up. PayPal can accept money from the purchaser in one of three ways, notes ecommerce-guide.com: charging the purchaser's credit card for any transactions (payments), debiting a checking account for any payments, or deducting payments from a PayPal account established with a personal check. Payment recipients can use the money in their account for online purchases or payments, can receive the payment from PayPal by check, or can have PayPal directly deposit the money into a checking account. Setting up a PayPal account is simple. As a payer, all you have to do is to provide your name, your e-mail address, your credit card information, and your billing address for your credit card.
All of these interoperable banking and e-commerce functions flattened the Internet marketplace so radically that even eBay was taken by surprise. Before PayPal, explained eBay CEO Meg Whitman, “If I did business on eBay in 1999, the only way I could pay you as a buyer was with a check or money order, a paper-based system. There was no electronic way to send money, and you were too small a merchant to qualify for a credit card account. What PayPal did was enable people, individuals, to accept credit cards. I could pay you as an individual seller on eBay with a credit card. This really leveled the playing field and made commerce more frictionless.” In fact, it was so good that eBay bought PayPal, but not on the recommendation of its Wall Street investment bankers— on the recommendation of its users.
“We woke up one day,” said Whitman, “and found out that 20 percent of the people on eBay were saying, 'I accept PayPal, please pay me that way.' And we said, 'Who are these people and what are they doing?' At first we tried to fight them and launched our own service, called Billpoint. Finally, in July 2002, we were at [an] eBay Live [convention] and the drumbeat through the hall was deafening. Our community was telling us, 'Would you guys stop fighting? We want a standard-and by the way, we have picked the standard and it's called PayPal, and we know you guys at eBay would like it to be your [standard], but it's theirs.' And that is when we knew we had to buy the company, because it was the standard and it was not ours... It is the best acquisition we ever made.”
Here's how I just wrote the above section: I transferred my notes from the Meg Whitman phone interview from my Dell laptop to my Dell desktop, then fired up my DSL connection and double-clicked on AOL, where I used Google to find a Web site that could explain PayPal, which directed me to ecommerce-guide.com. I downloaded the definition from the ecommerce-guide.com Web site, which was written in some Internet font as a text file, and then called it up on Microsoft Word, which automatically transformed it into a Word document, which I could then use to write this section on my desktop. That is also work flow! And what is most important about it is not that I have these work flow tools; it is how many people in India, Russia, China, Brazil, and Timbuktu now have them as well-along with all the transmission pipes and protocols so they too can plug and play from anywhere.
Where is all this going? More and more work flow will be automated. In the coming phase of Web services-work flow, here is how you will make a dentist appointment: You will instruct your computer by voice to make an appointment. Your computer will automatically translate your voice into a digital instruction. It will automatically check your calendar against the available dates on your dentist's calendar and offer you three choices. You will click on the preferred date and hour. The week before your appointment, your dentist's calendar will automatically send you an e-mail reminding you of the appointment. The night before, you will get a computer-generated voice message by phone, also reminding of your appointment.
For work flow to reach this next stage, and the productivity enhancements it will deliver, “we need more and more common standards,” said IBM's strategic planner Cawley. “The first round of standards to emerge with the Internet were around basic data-how do you represent a number, how do you organize files, how do you display and store content, and how do you share and exchange information. That was the Netscape phase. Now a whole new set of standards is emerging to enable work flow. These are standards about how we do business work together. For example, when you apply for a mortgage, go to your closing, or buy a house, there are literally dozens of processes and data flows among many different companies. One bank may handle securing your approval, checking your credit, establishing your interest rates, and handling the closing-after which the loan almost immediately is sold to a different bank.”
The next level of standards, added Cawley, will be about automating all these processes, so they flow even more seamlessly together and can stimulate even more standards. We are already seeing standards emerging around payroll, e-commerce payment, and risk profiling, around how music and photos are digitally edited, and, most important, around how supply chains are connected. All of these standards, on top of the work flow software, help enable work to be broken apart, reassembled, and made to flow, without friction, back and forth between the most efficient producers. The diversity of applications that will automatically be able to interact with each other will be limited only by our imaginations.
The gains in productivity from this could be bigger than anything we have ever seen before.
“Work flow platforms are enabling us to do for the service industry what Henry Ford did for manufacturing,” said Jerry Rao, the entrepreneur doing accounting work for Americans from India. “We are taking apart each task and sending it around to whomever can do it best, and because we are doing it in a virtual environment, people need not be physically adjacent to each other, and then we are reassembling all the pieces back together at headquarters [or some other remote site]. This is not a trivial revolution. This is a major one. It allows for a boss to be somewhere and his employees to be someplace else.” These work flow software platforms, Jerry added, “enable you to create virtual global offices-not limited by either the boundaries of your office or your country-and to access talent sitting in different parts of the world and have them complete tasks that you need completed in real time. And so 24/7/365 we are all working. And all this has happened in the twinkling of an eye-the span of the last two or three years.”
Genesis: The Flat World Platform Emerges
We need to stop here and take stock, because at this point-the mid-1990s-the platform for the flattening of the world has started to emerge. First, the falling walls, the opening of Windows, the digitization of content, and the spreading of the Internet browser seamlessly connected people with people as never before. Then work flow software seamlessly connected applications to applications, so that people could manipulate all their digitized content, using computers and the Internet, as never before. When you add this unprecedented new level of people-to-people communication to all these Web-based application-to-application work flow programs, you end up with a whole new global platform for multiple forms of collaboration. This is the Genesis moment for the flattening of the world. This is when it started to take shape. It would take more time to converge and really become flat, but this is the moment when people started to feel that something was changing. Suddenly more people from more different places found that they could collaborate with more other people on more different kinds of work and share more different kinds of knowledge than ever before. “It is the creation of this platform, with these unique attributes, that is the truly important sustainable breakthrough that made what you call the flattening of the world possible,” said Microsoft's Craig Mundie.
Indeed, thanks to this platform that emerged from the first three flat-teners, we were not just able to talk to each other more, we were able to do more things together. This is the key point, argued Joel Cawley, the IBM strategist. “We were not just communicating with each other more than ever, we were now able to collaborate-to build coalitions, projects, and products together-more than ever.”
The next six flatteners represent the new forms of collaboration which this new platform empowered. As J show, some people will use this platform for open-sourcing, some for outsourcing, some for offshoring, some for supply-chaining, some for insourcing, and some for in-forming. Each of these forms of collaboration was either made possible by the new platform or greatly enhanced by it. And as more and more of us learn how to collaborate in these different ways, we are flattening the world even more.
“Now you have to remember, back then Microsoft, IBM, Oracle, Netscape were all trying to build commercial Web servers. These were huge companies. And suddenly my development guy is telling me that he's getting ours off the Internet for free! It's like you had all these big corporate executives plotting strategies, and then suddenly the guys in the mail room are in charge. I kept asking, 'Who runs Apache? I mean, who are these guys?'”
Yes, the geeks in the mail room are deciding what software they will be using and what you will be using too. It's called the open-source movement, and it involves thousands of people around the world coming together online to collaborate in writing everything from their own software to their own operating systems to their own dictionary to their own recipe for cola-building always from the bottom up rather than accepting formats or content imposed by corporate hierarchies from the top down. The word “open-source” comes from the notion that companies or ad hoc groups would make available online the source code-the underlying programming instructions that make a piece of software work-and then let anyone who has something to contribute improve it and let millions of others just download it for their own use for free. While commercial software is copyrighted and sold, and companies guard the source code as they would their crown jewels so they can charge money to anyone who wants to use it and thereby generate income to develop new versions, open-source software is shared, constantly improved by its users, and made available for free to anyone. In return, every user who comes up with an improvement-a patch that makes this software sing or dance better-is encouraged to make that patch available to every other user for free.
Not being a computer geek, I had never focused much on the open-source movement, but when I did, I discovered it was an amazing universe of its own, with communities of online, come-as-you-are volunteers who share their insights with one another and then offer it to the public for nothing. They do it because they want something the market doesn't offer them; they do it for the psychic buzz that comes from creating a collective product that can beat something produced by giants like Microsoft or IBM, and-even more important-to earn the respect of their intellectual peers. Indeed, these guys and gals are one of the most interesting and controversial new forms of collaboration that have been facilitated by the flat world and are flattening it even more.
In order to explain how this form of collaboration works, why it is a flattener and why, by the way, it has stirred so many controversies and will be stirring even more in the future, I am going to focus on just two basic varieties of open-sourcing: the intellectual commons movement and the free software movement.
The intellectual commons form of open-sourcing has its roots in the academic and scientific communities, where for a long time self-organized collaborative communities of scientists have come together through private networks and later the Internet to pool their brainpower or share insights around a particular science or math problem. The Apache Web server had its roots in this form of open-sourcing. When I asked a friend of mine, Mike Arguello, an IT systems architect, to explain to me why people share knowledge or work in this way, he said, “IT people tend to be very bright people and they want everybody to know just how brilliant they are.” Marc Andreessen, who invented the first Web browser, agreed: “Open-source is nothing more than peer-reviewed science. Sometimes people contribute to these things because they make science, and they discover things, and the reward is reputation. Sometimes you can build a business out of it, sometimes they just want to increase the store of knowledge in the world. And the peer review part is critical-and open-source is peer review. Every bug or security hole or deviation from standards is reviewed.”
Well, as investors watched this mad rush to digitize everything, they said to themselves, “Holy cow. If everyone wants all this stuff digitized and turned into bits and transmitted over the Internet, the demand for Web service companies and the demand for fiber-optic cables to handle all this digitized stuff around the world is going to be limitless! You cannot lose if you invest in this!”
And thus was the bubble born.
Overinvestment is not necessarily a bad thing-provided that it is eventually corrected. I'll always remember a news conference that Microsoft chairman Bill Gates held at the 1999 World Economic Forum in Davos, at the height of the tech bubble. Over and over again, Gates was bombarded by reporters with versions of the question, “Mr. Gates, these Internet stocks, they're a bubble, right? Surely they're a bubble. They must be a bubble?” Finally an exasperated Gates said to the reporters something to the effect of, “Look, you bozos, of course they're a bubble, but you're all missing the point. This bubble is attracting so much new capital to this Internet industry, it is going to drive innovation faster and faster.” Gates compared the Internet to the gold rush, the idea being that more money was made selling Levi's, picks, shovels, and hotel rooms to the gold diggers than from digging up gold from the earth. Gates was right: Booms and bubbles may be economically dangerous; they may end up with many people losing money and a lot of companies going bankrupt. But they also often do drive innovation faster and faster, and the sheer overcapacity that they spur-whether it is in railroad lines or automobiles-can create its own unintended positive consequences.
That is what happened with the Internet stock boom. It sparked a huge overinvestment in fiber-optic cable companies, which then laid massive amounts of fiber-optic cable on land and under the oceans, which dramatically drove down the cost of making a phone call or transmitting data anywhere in the world.
The first commercial installation of a fiber-optic system was in 1977, after which fiber slowly began to replace copper telephone wires, because it could carry data and digitized voices much farther and faster in larger quantities. According to Howstuffworks.com, fiber optics are made up of strands of optically pure glass each “as thin as a human hair,” which are arranged in bundles, called “optical cables,” to carry digitized packets of information over long distances. Because these optical fibers are so much thinner than copper wires, more fibers can be bundled into a given diameter of cable than can copper wires, which means that much more data or many more voices can be sent over the same cable at a lower cost. The most important benefit of fiber, though, derives from the dramatically higher bandwidth of the signals it can transport over long distances. Copper wires can carry very high frequencies too, but only for a few feet before the signal starts to degrade in strength due to certain parasitic effects. Optical fibers, by contrast, can carry very high-frequency optical pulses on the same individual fiber without substantial signal degradation for many, many miles.
The way fiber-optic cables work, explains one of the manufacturers, ARC Electronics, on its Web site, is by converting data or voices into light pulses and then transmitting them down fiber lines, instead of using electronic pulses to transmit information down copper lines. At one end of the fiber-optic system is a transmitter. The transmitter accepts coded electronic pulse information-words or data-coming from copper wire out of your home telephone or office computer. The transmitter then processes and translates those digitized, electronically coded words or data into equivalently coded light pulses. A light-emitting diode (LED) or an injection-laser diode (ILD) can be used to generate the light pulses, which are then funneled down the fiber-optic cable. The cable functions as a kind of light guide, guiding the light pulses introduced at one end of the cable through to the other end, where a light-sensitive receiver converts the pulses back into the electronic digital Is and Os of the original signal, so they can then show up on your computer screen as e-mail or in your cell phone as a voice. Fiber-optic cable is also ideal for secure communications, because it is very difficult to tap.
It was actually the coincidence of the dot-com boom and the Telecommunications Act of 1996 that launched the fiber-optic bubble. The act allowed local and long-distance companies to get into each other's businesses, and enabled all sorts of new local exchange carriers to compete head-to-head with the Baby Bells and AT&T in providing both phone services and infrastructure. As these new phone companies came online, offering their own local, long-distance, international, data, and Internet services, each sought to have its own infrastructure. And why not? The Internet boom led everyone to assume that the demand for bandwidth to carry all that Internet traffic would double every three months-indefinitely. For about two years that was true. But then the law of large numbers started to kick in, and the pace of doubling slowed. Unfortunately, the telecom companies weren't paying close attention to the developing mismatch between demand and reality. The market was in the grip of an Internet fever, and companies just kept building more and more capacity. And the stock market boom meant money was free! It was a party! So every one of these incredibly optimistic scenarios from every one of these new telecom companies got funded. In a period of about five or six years, these telecom companies invested about $ 1 trillion in wiring the world. And virtually no one questioned the demand projections.
Few companies got crazier than Global Crossing, one of the companies hired by all these new telecoms to lay fiber-optic cable for them around the world. Global Crossing was founded in 1997 by Gary Winnick and went public the next year. Robert Annunziata, who lasted only a year as CEO, had a contract that the Corporate Library's Nell Minow once picked as the worst (from the point of view of shareholders) in the United States. Among other things, it included Annunziata's mother's first-class airfare to visit him once a month. It also included a signing bonus of 2 million shares of stock at $10 a share below market.
Henry Schacht, a veteran industrialist now with E. M. Warburg, Pincus & Co., was brought in by Lucent, the successor of Western Electric, to help manage it through this crazy period. He recalled the atmosphere: “The telecom deregulation of 1996 was hugely important. It allowed competitive local exchange carriers to build their own capacities and sell in competition with each other and with the Baby Bells. These new telecoms went to companies like Global Crossing and had them install fiber networks for them so they could compete at the transport level with AT&T and MCI, particularly on overseas traffic... Everyone thought this was a new world, and it would never stop. [You had] competitive firms using free capital, and everyone thought the pie would expand infinitely. So [each company said,] 'I will put my fiber down before you do, and I will get a bigger share than you.' It was supposed to be just a vertical growth line, straight up, and we each thought we would get our share, so everybody built to the max projections and assumed that they would get their share.”
It turned out that while business-to-business and e-commerce developed as projected, and a lot of Web sites that no one anticipated exploded-like eBay, Amazon, and Google-they still devoured only a fraction of the capacity that was being made available. So when the dotcom bust came along, there was just way too much fiber-optic cable out there. Long-distance phone rates went from $2 a minute to 100. And the transmission of data was virtually free. “The telecom industry has invested itself right out of a business,” Mike McCue, chief operations officer of Tellme Networks, a voice-activated Internet service, told CNET News.com in June 2001. “They've laid so much fiber in the ground that they've basically commoditized themselves. They are going to get into massive price wars with everyone and it's going to be a disaster.”
It was a disaster for many of the companies and their investors (Global Crossing filed for bankruptcy in January 2002, with $12.4 billion in debt), but it turned out to be a great boon for consumers. Just as the national highway system that was built in the 1950s flattened the United States, broke down regional differences, and made it so much easier for companies to relocate in lower-wage regions, like the South, because it had become so much easier to move people and goods long distances, so the laying of global fiber highways flattened the developed world. It helped to break down global regionalism, create a more seamless global commercial network, and made it simple and almost free to move digitized labor-service jobs and knowledge work-to lower-cost countries.
(It should be noted, though, that those fiber highways in America tended to stop at the last mile-before connecting to households. While a huge amount of long-distance fiber cable was laid to connect India and America, virtually none of these new U.S. telecom companies laid any substantial new local loop infrastructure, due to a failure of the 1996 telecom deregulation act to permit real competition in the local loop between the cable companies and the telephone companies. Where the local broadband did get installed was in office buildings, which were already pretty well served by the old companies. So this pushed prices down for businesses-and for Indians who wanted to get online from Bangalore to do business with those businesses-but it didn't create the sort of competition that could bring cheap broadband capability to the American masses in their homes. That has started happening only more recently.)
The broad overinvestment in fiber cable is a gift that keeps on giving, thanks to the unique nature of fiber optics. Unlike other forms of Internet overinvestment, it was permanent: Once the fiber cables were laid, no one was going to dig them up and thereby eliminate the overcapacity. So when the telecom companies went bankrupt, the banks took them over and then sold their fiber cables for ten cents on the dollar to new companies, which continued to operate them, which they could do profitably, having bought them in a fire sale. But the way fiber cable works is that each cable has multiple strands of fiber in it with a potential capacity to transmit many terabits of data per second on each strand. When these fiber cables were originally laid, the optical switches-the transmitters and receivers-at each end of them could not take full advantage of the fiber's full capacity. But every year since then, the optical switches at each end of that fiber cable have gotten better and better, meaning that more and more voices and data can be transmitted down each fiber. So as the switches keep improving, the capacity of all the already installed fiber cables just keeps growing, making it cheaper and easier to transmit voices and data every year to any part of the world. It is as though we laid down a national highway system where people were first allowed to drive 50 mph, then 60 mph, then 70 mph, then 80 mph, then eventually 150 mph on the same highways without any fear of accidents. Only this highway wasn't just national. It was international.
“Every layer of innovation gets built on the next,” said Andreessen, who went on from Netscape to start another high-tech firm, Opsware Inc. “And today the most profound thing to me is the fact that a fourteen-year-old in Romania or Bangalore or the Soviet Union or Vietnam has all the information, all the tools, all the software easily available to apply knowledge however they want. That is why I am sure the next Napster is going to come out of left field. As bioscience becomes more computational and less about wet labs, and as all the genomic data becomes easily available on the Internet, at some point you will be able to design vaccines on your laptop.”
I think Andreessen touches on what is unique about the flat world and the era of Globalization 3.0. It is going to be driven by groups and individuals, but of a much more diverse background than those twelve scientists who made up Andreessen's world when he created Mosaic. Now we are going to see the real human mosaic emerge-from all over the world, from left field and right field, from West and East and North and South-to drive the next generation of innovation. Indeed, a few days after Andreessen and I talked, the following headline appeared on the front page of The New York Times (July 15, 2004): “U.S. Permits 3 Cancer Drugs from Cuba.” The story went on to say, “The federal government is permitting a California biotechnology company to license three experimental cancer drugs from Cuba-making an exception to the policy of tightly restricting trade with that country.” Executives of the company, CancerVex, said that “it was the first time an American biotechnology company had obtained permission to license a drug from Cuba, a country that some industry executives and scientists say is surprisingly strong in biotechnology for a developing nation... More than $1 billion was spent over the years to build and operate research institutes on the west side of Havana staffed by Cuban scientists, many of them educated in Europe.”
Just to summarize again: The PC-Windows flattening phase was about me interacting with my computer and me interacting with my own limited network inside my own company. Then came along this Internet-e-mail-browser phase, and it flattened the earth a little bit more. It was about me and my computer interacting with anyone anywhere on any machine, which is what e-mail is all about, and me and my computer interacting with anybody's Web site on the Internet, which is what browsing is all about. In short, the PC-Windows phase begat the Netscape browsing-e-mail phase and the two together enabled more people to communicate and interact with more other people anywhere on the planet than ever before.
But the fun was just beginning. This phase was just the foundation for the next step in flattening the flat world.
Flattener #3: Work Flow Software, Let's Do Lunch: Have Your Application, Talk to My Application
I met Scott Hyten, the CEO of Wild Brain, a cutting-edge animation studio in San Francisco that produces films and cartoons for Disney and other major studios, at a meeting in Silicon Valley in the winter of 2004.1 had been invited by John Doerr, the venture capitalist, to test out the ideas in this book to a few of the companies that he was backing. Hyten and I really hit it off, maybe because after hearing my arguments he wrote me an e-mail that said, “I am sure in Magellan's time there were plenty of theologians, geographers, and pundits who wanted to make the world flat again. I know the world is flat, and thank you for your support.” A man after my own heart.When I asked him to elaborate, Hyten sketched out for me how animated films are produced today through a global supply chain. I understood immediately why he too had concluded that the world is flat. “At Wild Brain,” he said, “we make something out of nothing. We learn how to take advantage of the flat world. We are not fighting it. We are taking advantage of it.”
Hyten invited me to come and watch them produce a cartoon segment to really appreciate how flat the world is, which I did. The series they were working on when I showed up was for the Disney Channel and called Higglytown Heroes. It was inspired by all the ordinary people who rose to the challenge of 9/11. Higglytown “is the typical 1950s small town,” said Hyten. “It is Pleasantville. And we are exporting the production of this American small town around the world-literally and figuratively. The foundation of the story is that every person, all the ordinary people living their lives, are the heroes in this small town-from the schoolteacher to the pizza delivery man.”
This all-American show is being produced by an all-world supply chain. “The recording session,” explained Hyten, “is located near the artist, usually in New York or L.A., the design and direction is done in San Francisco, the writers network in from their homes (Florida, London, New York, Chicago, LA, and San Francisco), and the animation of the characters is done in Bangalore with edits from San Francisco. For this show we have eight teams in Bangalore working in parallel with eight different writers. This efficiency has allowed us to contract with fifty 'stars' for the twenty-six episodes. These interactive recording/writing/ animation sessions allow us to record an artist for an entire show in less than half a day, including unlimited takes and rewrites. We record two actors per week. For example, last week we recorded Anne Heche and Smokey Robinson. Technically, we do this over the Internet. We have a VPN [virtual private network] configured on computers in our offices and on what we call writers' 'footballs,' or special laptop computers that can connect over any cat-5 Ethernet connection or wireless broadband connection in the 'field.' This VPN allows us to share the feed from the microphone, images from the session, the real-time script, and all the animation designs amongst all the locations with a simple log-in. Therefore, one way for you to observe is for us to ship you a football. You connect at home, the office, most hotel rooms, or go down to your local Starbucks [which has wireless broadband Internet access], log on, put on a pair of Bose noise-reduction headphones, and listen, watch, read, and comment. 'Sharon, can you sell that line a little more?' Then, over the eleven-week production schedule for the show, you can log in twenty-four hours a day and check the progress of the production as it follows the sun around the world. Technically, you need the 'football' only for the session. You can use your regular laptop to follow the 'dailies' and 'edits' over the production cycle.”
I needed to see Wild Brain firsthand, because it is a graphic example of the next layer of innovation, and the next flattener, that broadly followed on the Berlin Wall-Windows and Netscape phases. I call this the “work flow phase.” When the walls went down, and the PC, Windows, and Netscape browser enabled people to connect with other people as never before, it did not take long before all these people who were connecting wanted to do more than just browse and send e-mail, instant messages, pictures, and music over this Internet platform. They wanted to shape things, design things, create things, sell things, buy things, keep track of inventories, do somebody else's taxes, and read somebody else's X-rays from half a world away. And they wanted to be able to do any of these things from anywhere to anywhere and from any computer to any computer-seamlessly. The wall-Windows-Netscape phases paved the way for that by standardizing the ways words, music, pictures, and data would be digitized and transported on the Internet-so e-mail and browsing became a very rich experience.
But for all of us to go to the next stage, to get more out of the Internet, the flattening process had to go another notch. We needed two things. We needed programmers to come along and write new applications— new software-that would enable us really to get the maximum from our computers as we worked with these digitized data, words, music, and pictures and shaped them into products. We also needed more magic pipes, more transmissions protocols, that would ensure that everyone's software applications could connect with everyone else's software applications. In short, we had to go from an Internet that just connected people to people, and people to their own applications, to an Internet that could connect any of my software programs to any of your software programs. Only then could we really work together.
Think of it this way: In the beginning, work flow consisted of your sales department taking an order on paper, walking it over to your shipping department, which shipped the product, and then someone from shipping walking over to billing with a piece of paper and instructing them to churn out an invoice to the customer. As a result of the Berlin Wall-Windows-Netscape phases, work flow took a huge leap forward. Now your sales department could electronically take that order, e-mail it to the shipping department within your own company, and then have the shipping department send out the product to the customer and automatically spit out a bill at the same time. The fact that all the departments within your company were seamlessly interoperable and that work could flow between them was a great boost to productivity-but this could happen only if all your company's departments were using the same software and hardware systems. More often than not, back in the 1980s and early 1990s, a company's sales department was running Microsoft and the inventory department was running Novell, and they could not communicate with each other. So work did not flow as easily as it should.
We often forget that the software industry started out like a bad fire department. Imagine a city where every neighborhood had a different interface for connecting the fire hose to the hydrant. Everything was fine as long as your neighborhood fire department could handle your fire. But when a fire became too big, and the fire engines from the next neighborhood had to be called in, they were useless because they could not connect their hoses to your hydrants.
For the world to get flat, all your internal departments-sales, marketing, manufacturing, billing, and inventory-had to become interoperable, no matter what machines or software each of them was running. And for the world to get really flat, all your systems had to be interoperable with all the systems of any other company. That is, your sales department had to be connected to your supplier's inventory department and your supplier's inventory department had to be seamlessly connected to its supplier's supplier, which was a factory in China. That way, when you made a sale, an item was automatically shipped from your supplier's warehouse, and another item was automatically manufactured by your supplier's supplier, and a bill was generated from your billing department. The disparate computer systems and software applications of three distinctly different companies had to be seamlessly interoperable so that work could flow between them.
In the late 1990s, the software industry began to respond to what its consumers wanted. Technology companies, through much backroom wrangling and trial and error, started to forge more common Web-based standards, more integrated digital plumbing and protocols, so that anyone could fit his hose-his software applications-onto anyone else's hydrant.
This was a quiet revolution. Technically, what made it possible was the development of a new data description language, called XML, and its related transport protocol, called SOAP. IBM, Microsoft, and a host of other companies contributed to the development of both XML and SOAP, and both were subsequently ratified and popularized as the Internet standards. XML and SOAP created the technical foundation for software program-to-software program interaction, which was the foundation for Web-enabled work flow. They enabled digitized data, words, music, and photos to be exchanged between diverse software programs so that they could be shaped, designed, manipulated, edited, reedited, stored, published, and transported-without any regard to where people are physically sitting or what computing devices they are connecting through.
Once this technical foundation was in place, more and more people started writing work flow software programs for more and more different tasks. Wild Brain wanted programs to make animated films with a production team spread out around the world. Boeing wanted them so that its airplane factories in America could constantly resupply different airline customers with parts, through its computer ordering systems, no matter what country those orders came from. Doctors wanted them so that an X-ray taken in Bangor could be read in a hospital in Bangalore, without the doctor in Maine ever having to think about what computers that Indian hospital had. And Mom and Dad wanted them because they wanted their e-banking software, e-brokerage software, office e-mail, and spreadsheet software to all work off their home laptop and be able to interface with their office desktop. And once everyone's applications started to connect to everyone else's applications-which took several years and lot of technology and brainpower to make happen-work could not only flow like never before, but it could be chopped up and disaggregated like never before and sent to the four corners of the world. This meant that work could flow anywhere. Indeed, it was the ability to enable applications to speak to applications, not just people to speak to people, that would soon make outsourcing possible. Thanks to different kinds of Web services-work flow, said Craig Mundie, Microsoft's chief technology officer, “the industry created a global platform for a global workforce of people and computers.”
The vast network of underground plumbing that made it possible for all this work to flow has become quite extensive. It includes all the Internet protocols of the previous era, like TCP/IP and others, which made browsing and e-mail and Web sites possible. It includes newer tools, like XML and SOAP, which enabled Web applications to communicate with each other more seamlessly, and it includes software agents known as middleware, which serves as an intermediary between wildly diverse applications. The nexus of these technologies has been a huge boon to innovation and a huge reducer of friction between companies and applications. Instead of everyone trying to control the fire hydrant nozzle, they made all the nozzles and hoses the same, creating a much bigger market that stretched across every neig
hborhood of the world. Then companies started to compete instead over the quality of the hose, the pump, and the fire truck. That is, they competed over who could make the most useful and nifty applications. Said Joel Cawley, the head of IBM's strategic planning unit, “Standards don't eliminate innovation, they just allow you to focus it. They allow you to focus on where the real value lies, which is usually everything you can add above and around the standard.”
I found this out writing my last book. Once Microsoft Word got established as the global standard, work could flow between people on different continents much more easily, because we were all writing off the same screen with the same basic toolbar. When I was working on my first book, From Beirut to Jerusalem, in 1988,1 spent part of my year's leave in the Middle East and had to take notes with pen and paper, as it was the pre-laptop and pre-Microsoft Word era. When I wrote my second book, The Lexus and the Olive Tree, in 1998, I had to do some of the last-minute editing from the computer behind the front desk at a Swiss hotel in Davos on a German version of Microsoft Word. I could not understand a single word, a single command function, on the toolbar of the German version of Word. But by 1998, I was so familiar with the Word for Windows writing program, and where the various on-screen icons were, that I was able to point and click my way through the editing on the German version and type my corrections with the English letters on the German keyboard. Shared standards are a huge flattener, because they both force and empower more people to communicate and innovate over much wider platforms.
Another of my favorite examples of this is PayPal, which enabled eBay's e-commerce bazaar to become what it is today. PayPal is a money transfer system founded in 1998 to facilitate C2C (customer-to-customer) transactions, like a buyer and seller brought together by eBay. According to the Web site ecommerce-guide.com, using PayPal, anyone with an e-mail address can send money to anyone else with an e-mail address, whether the recipient has a PayPal account or not. PayPal doesn't even care whether a commercial transaction is taking place. If someone in the office is organizing a party for someone else and everyone needs to chip in, they can all do it using PayPal. In fact, the organizer can send everyone PayPal reminders by e-mail with clear instructions as to how to pay up. PayPal can accept money from the purchaser in one of three ways, notes ecommerce-guide.com: charging the purchaser's credit card for any transactions (payments), debiting a checking account for any payments, or deducting payments from a PayPal account established with a personal check. Payment recipients can use the money in their account for online purchases or payments, can receive the payment from PayPal by check, or can have PayPal directly deposit the money into a checking account. Setting up a PayPal account is simple. As a payer, all you have to do is to provide your name, your e-mail address, your credit card information, and your billing address for your credit card.
All of these interoperable banking and e-commerce functions flattened the Internet marketplace so radically that even eBay was taken by surprise. Before PayPal, explained eBay CEO Meg Whitman, “If I did business on eBay in 1999, the only way I could pay you as a buyer was with a check or money order, a paper-based system. There was no electronic way to send money, and you were too small a merchant to qualify for a credit card account. What PayPal did was enable people, individuals, to accept credit cards. I could pay you as an individual seller on eBay with a credit card. This really leveled the playing field and made commerce more frictionless.” In fact, it was so good that eBay bought PayPal, but not on the recommendation of its Wall Street investment bankers— on the recommendation of its users.
“We woke up one day,” said Whitman, “and found out that 20 percent of the people on eBay were saying, 'I accept PayPal, please pay me that way.' And we said, 'Who are these people and what are they doing?' At first we tried to fight them and launched our own service, called Billpoint. Finally, in July 2002, we were at [an] eBay Live [convention] and the drumbeat through the hall was deafening. Our community was telling us, 'Would you guys stop fighting? We want a standard-and by the way, we have picked the standard and it's called PayPal, and we know you guys at eBay would like it to be your [standard], but it's theirs.' And that is when we knew we had to buy the company, because it was the standard and it was not ours... It is the best acquisition we ever made.”
Here's how I just wrote the above section: I transferred my notes from the Meg Whitman phone interview from my Dell laptop to my Dell desktop, then fired up my DSL connection and double-clicked on AOL, where I used Google to find a Web site that could explain PayPal, which directed me to ecommerce-guide.com. I downloaded the definition from the ecommerce-guide.com Web site, which was written in some Internet font as a text file, and then called it up on Microsoft Word, which automatically transformed it into a Word document, which I could then use to write this section on my desktop. That is also work flow! And what is most important about it is not that I have these work flow tools; it is how many people in India, Russia, China, Brazil, and Timbuktu now have them as well-along with all the transmission pipes and protocols so they too can plug and play from anywhere.
Where is all this going? More and more work flow will be automated. In the coming phase of Web services-work flow, here is how you will make a dentist appointment: You will instruct your computer by voice to make an appointment. Your computer will automatically translate your voice into a digital instruction. It will automatically check your calendar against the available dates on your dentist's calendar and offer you three choices. You will click on the preferred date and hour. The week before your appointment, your dentist's calendar will automatically send you an e-mail reminding you of the appointment. The night before, you will get a computer-generated voice message by phone, also reminding of your appointment.
For work flow to reach this next stage, and the productivity enhancements it will deliver, “we need more and more common standards,” said IBM's strategic planner Cawley. “The first round of standards to emerge with the Internet were around basic data-how do you represent a number, how do you organize files, how do you display and store content, and how do you share and exchange information. That was the Netscape phase. Now a whole new set of standards is emerging to enable work flow. These are standards about how we do business work together. For example, when you apply for a mortgage, go to your closing, or buy a house, there are literally dozens of processes and data flows among many different companies. One bank may handle securing your approval, checking your credit, establishing your interest rates, and handling the closing-after which the loan almost immediately is sold to a different bank.”
The next level of standards, added Cawley, will be about automating all these processes, so they flow even more seamlessly together and can stimulate even more standards. We are already seeing standards emerging around payroll, e-commerce payment, and risk profiling, around how music and photos are digitally edited, and, most important, around how supply chains are connected. All of these standards, on top of the work flow software, help enable work to be broken apart, reassembled, and made to flow, without friction, back and forth between the most efficient producers. The diversity of applications that will automatically be able to interact with each other will be limited only by our imaginations.
The gains in productivity from this could be bigger than anything we have ever seen before.
“Work flow platforms are enabling us to do for the service industry what Henry Ford did for manufacturing,” said Jerry Rao, the entrepreneur doing accounting work for Americans from India. “We are taking apart each task and sending it around to whomever can do it best, and because we are doing it in a virtual environment, people need not be physically adjacent to each other, and then we are reassembling all the pieces back together at headquarters [or some other remote site]. This is not a trivial revolution. This is a major one. It allows for a boss to be somewhere and his employees to be someplace else.” These work flow software platforms, Jerry added, “enable you to create virtual global offices-not limited by either the boundaries of your office or your country-and to access talent sitting in different parts of the world and have them complete tasks that you need completed in real time. And so 24/7/365 we are all working. And all this has happened in the twinkling of an eye-the span of the last two or three years.”
Genesis: The Flat World Platform Emerges
We need to stop here and take stock, because at this point-the mid-1990s-the platform for the flattening of the world has started to emerge. First, the falling walls, the opening of Windows, the digitization of content, and the spreading of the Internet browser seamlessly connected people with people as never before. Then work flow software seamlessly connected applications to applications, so that people could manipulate all their digitized content, using computers and the Internet, as never before. When you add this unprecedented new level of people-to-people communication to all these Web-based application-to-application work flow programs, you end up with a whole new global platform for multiple forms of collaboration. This is the Genesis moment for the flattening of the world. This is when it started to take shape. It would take more time to converge and really become flat, but this is the moment when people started to feel that something was changing. Suddenly more people from more different places found that they could collaborate with more other people on more different kinds of work and share more different kinds of knowledge than ever before. “It is the creation of this platform, with these unique attributes, that is the truly important sustainable breakthrough that made what you call the flattening of the world possible,” said Microsoft's Craig Mundie.
Indeed, thanks to this platform that emerged from the first three flat-teners, we were not just able to talk to each other more, we were able to do more things together. This is the key point, argued Joel Cawley, the IBM strategist. “We were not just communicating with each other more than ever, we were now able to collaborate-to build coalitions, projects, and products together-more than ever.”
The next six flatteners represent the new forms of collaboration which this new platform empowered. As J show, some people will use this platform for open-sourcing, some for outsourcing, some for offshoring, some for supply-chaining, some for insourcing, and some for in-forming. Each of these forms of collaboration was either made possible by the new platform or greatly enhanced by it. And as more and more of us learn how to collaborate in these different ways, we are flattening the world even more.
Flattener #4: Open-Sourcing, Self-Organizing Collaborative Communities
Alan Cohen still remembers the first time he heard the word “Apache” as an adult, and it wasn't while watching a cowboys-and-Indians movie. It was the 1990s, the dot-com market was booming, and he was a senior manager for IBM, helping to oversee its emerging e-commerce business. “I had a whole team with me and a budget of about $8 million,” Cohen recalled. “We were competing head-to-head with Microsoft, Netscape, Oracle, Sun-all the big boys. And we were playing this very big-stakes game for e-commerce. IBM had a huge sales force selling all this e-commerce software. One day I asked the development director who worked for me, 'Say, Jeff, walk me through the development process for these e-commerce systems. What is the underlying Web server?' And he says to me, It's built on top of Apache.' The first thing I think of is John Wayne. 'What is Apache?' I ask. And he says it is a shareware program for Web server technology. He said it was produced for free by a bunch of geeks just working online in some kind of open-source chat room. I was floored. I said, 'How do you buy it?' And he says, Tou download it off a Web site for free.' And I said, 'Well, who supports it if something goes wrong?' And he says, 'I don't know-it just works!' And that was my first exposure to Apache...“Now you have to remember, back then Microsoft, IBM, Oracle, Netscape were all trying to build commercial Web servers. These were huge companies. And suddenly my development guy is telling me that he's getting ours off the Internet for free! It's like you had all these big corporate executives plotting strategies, and then suddenly the guys in the mail room are in charge. I kept asking, 'Who runs Apache? I mean, who are these guys?'”
Yes, the geeks in the mail room are deciding what software they will be using and what you will be using too. It's called the open-source movement, and it involves thousands of people around the world coming together online to collaborate in writing everything from their own software to their own operating systems to their own dictionary to their own recipe for cola-building always from the bottom up rather than accepting formats or content imposed by corporate hierarchies from the top down. The word “open-source” comes from the notion that companies or ad hoc groups would make available online the source code-the underlying programming instructions that make a piece of software work-and then let anyone who has something to contribute improve it and let millions of others just download it for their own use for free. While commercial software is copyrighted and sold, and companies guard the source code as they would their crown jewels so they can charge money to anyone who wants to use it and thereby generate income to develop new versions, open-source software is shared, constantly improved by its users, and made available for free to anyone. In return, every user who comes up with an improvement-a patch that makes this software sing or dance better-is encouraged to make that patch available to every other user for free.
Not being a computer geek, I had never focused much on the open-source movement, but when I did, I discovered it was an amazing universe of its own, with communities of online, come-as-you-are volunteers who share their insights with one another and then offer it to the public for nothing. They do it because they want something the market doesn't offer them; they do it for the psychic buzz that comes from creating a collective product that can beat something produced by giants like Microsoft or IBM, and-even more important-to earn the respect of their intellectual peers. Indeed, these guys and gals are one of the most interesting and controversial new forms of collaboration that have been facilitated by the flat world and are flattening it even more.
In order to explain how this form of collaboration works, why it is a flattener and why, by the way, it has stirred so many controversies and will be stirring even more in the future, I am going to focus on just two basic varieties of open-sourcing: the intellectual commons movement and the free software movement.
The intellectual commons form of open-sourcing has its roots in the academic and scientific communities, where for a long time self-organized collaborative communities of scientists have come together through private networks and later the Internet to pool their brainpower or share insights around a particular science or math problem. The Apache Web server had its roots in this form of open-sourcing. When I asked a friend of mine, Mike Arguello, an IT systems architect, to explain to me why people share knowledge or work in this way, he said, “IT people tend to be very bright people and they want everybody to know just how brilliant they are.” Marc Andreessen, who invented the first Web browser, agreed: “Open-source is nothing more than peer-reviewed science. Sometimes people contribute to these things because they make science, and they discover things, and the reward is reputation. Sometimes you can build a business out of it, sometimes they just want to increase the store of knowledge in the world. And the peer review part is critical-and open-source is peer review. Every bug or security hole or deviation from standards is reviewed.”