Experiences increase the dimensions of human interaction and understanding. Experiences, not data, s

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The New Digital Economy
Regis McKenna www.mckenna-group.com
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Transparent agents of change
Tools of Speed and Diversity
Digital Technologies
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Digital media Anytime, Anywhere

• Integrated
• Fast
• Cheap
• Programmable
• Scalable
• Prolific

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System trends in terms of cost per mip
Overall Trend
Price Per Mip (dollars)
Source Pathfinder Research, Inc.
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Satellites Borderless media
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Data network transmission costs1980-1997
Constant 1995 Dollars per Megabit (logarithmic
scale)
Based on the cost of connections between New
York and Los Angeles Source NATA
Telecommunications Market Review and Forecast
Gemini analysis The McKenna Group analysis
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Worldwide Telephone Lines, Wireless Subscribers
and Internet Hosts,1987 2002E (Millions)
Sources International Telecommunication Union,
EMC Publications, Network Wizards (www.nw.com),
and Salomon Brothers Inc
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Wired upInternet hosts per 10,000 population,
January 1998
Source The Economist, February 21,
1998 Includes all hosts ending .com, .net
and .org, which exaggerates some numbers
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Time and space are transformed by real-time
information technology
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Access - anytime, anywhere
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Fast-changing global business environment

• Speed of changing accelerating
• More competition, increased choice, lower prices,
  lower margins
• Replacement of tangible assets with information
• Enterprise intranets - dramatically changing
  global infrastructures
• From dependence to independence to
  interdependence

• Boundaries collapsing
• Market economies expanding - deregulation and
  privatization
• Trade replaces Cold War polarities
• Telecommunications infrastructure investment -
  analog to digital
• Time and space transformed

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Time passages
Time, history, and memory become qualitatively
different concepts in a world where electronic
mass communication is possible. The capacity of
electronic mass communication to transcend time
and space creates instability by disconnecting
people from past traditions, but it also
liberates people by making the past less
determinate of experiences in the present.
George Lipsitz, Time Passages
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Old model

• High growth markets
• Volume-learning curve
• Established distribution channels
• Brand leaders educate lead market

• Few competitors
• Low cost design and production
• High margins
• High quality
• Financial resources

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New model
Production, distribution marketing

• Heterogeneous channels
• Direct customer interface
• Move from tangible to
• intangible assets
• Virtual production
• Leveraging others assets
• Agility and speed

• Shorter life cycles
• Multiple product variations in process
• Increased competition
• Architecture standards drivers
• Many new competitive players
• Lower margins

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Innovation Investment Cycle
Reinvestment
Basic Research
Applied Research
Development
Production Distribution
Product Process
3 months to 5 years
20 to 30 years
Profits Equity Debt
Private Venture Capital
Government Private Investment
Large Companies
Universities Govt Labs
Entrepreneurial
Large Enterprise
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Effects of the New Economy

• Choice is higher value than brand
• Price is higher value than brand
• Access primacy over broadcast
• Anywhere, anytime
• Live in the ever-present NOW!
• Time from need/want to satisfaction collapsing to
  zero
• Virtual loyalty
• Consumer expectations rise

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The New Economy ?

• The pace of change is increasing, not slowing
  down
• The paradox of distance
• Networks replace linear structures
• Access logistics Each new node increases value
  of every other node
• Information and knowledge - leverage for both
  producer and consumer
• Models of the marketplace are undergoing major
  paradigm shifts --the extant and consequences of
  which are quite unknown.

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Silicon Valley Model

• gt 100 different industries and sub-industries
• Abundant risk capital and models of success
• Public risk market readily accessible
• A culture of networking or helping others succeed
• Microelectronics based
• Experienced managers, recycled wealth and new
  blood
• Diversity of population
• Education centers
• 10 or more centers of research. (Big R) gt 5B
• Largest trade region in US
• Globally connected by investment, alliances
  trade
• No penalty for failure
• A belief system based on technological
  progress,
• market adaptation and merit

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Technology and social change
1875 - 1975
1985 -
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Imagination