Reducing the Unit Cost of Transactions

On the positive side, we’re getting better at measuring these interactions and connections. Modern P2P networks generate huge quantities of data that can make relationships and preferences increasingly explicit and transparent, as we’ve talked about in other parts of this book. A simple network analysis in a P2P network reveals more information about an individual’s relationships than face-to-face interactions would have shown in the past. Interest graphs and networks are actually more accurate than what people say up front. Stated preferences may not reflect a person’s true behaviors, such as likes or dislikes or transactions or interests. So our ability to predict this behavior and model the complex relationships is what drives a lot of these P2P business models.

What emerges in these P2P networks is an interesting concept, in terms of how we get to a relevant economy of scale (i.e., n economy of scale). In 1937, a British economist, Ronald Coase, argued in his influential article “The Nature of the Firm” that the reason we have firms is because we need to bring economies of scale to business actions that would be too expensive to coordinate in markets. But the idea that big corporations can do things faster and more efficiently has been turned upside down in the past fifteen years, as technology costs have plummeted and businesses have become more consumer focused. In fact, a four-person company can now do business on a level that would have needed a fifty-person company just a few years ago. This is happening at a dizzying rate. I even look at my own company, Constellation Research. What we can achieve with twenty people is much more effective today than what two hundred people could have done, say, five years ago. It’s because of how we’re connected. It’s the way we can communicate. It’s the way we tap into our networks. These P2P networks actually allow us to scale up and compete with a two-hundred-person company. It sounds crazy, but with today’s P2P model, we are actually set up in a way that we don’t have to hire all the experts that a large firm does. Instead, we can use the power of our networks to recreate similar access and levels of services for our clients. We can create alliances with individuals to actually compete with existing organizations. And we can do it without having to build the same level of infrastructure and scale to retain those individuals. We can build them and retain them in a virtual way. That’s the power of these P2P networks. They empower organizations to compete and to change the way we co-create and co-innovate. This idea is new, and it is transforming business models. We move from who we partner with to whom we co-innovate and co-create with.

So, what we’re talking about now is how networks are force multipliers. It’s the networks, stupid. In other words, if everyone is part of a network, the network then amplifies our actions. But you can’t ignore a network. Ignoring a network is like playing an electric guitar with the amplifier turned off. How we bring these networks together matters, as they are critical in building a business community. We have to bet on these networks to gain influence and increase market share.

There are five types of networks. P2P business environments can be connected at an individual level, as direct teams, as partners and alliances, as extended value chains, and through external advocate ecosystems.

• Individuals. What does it mean to be connected at the individual level? These modern P2P networks allow individuals to exert influence in a way that only organizations could put forth in the past. A person can tweet as easily as a corporation can. A person can tap into her network and recruit as easily or even more effectively than a corporation can. A blog is a publishing tool in the hands of anyone who wants to use it. Bringing collections of individuals together to create a network in the digital environment will result in monumental changes.
• Direct teams. We can also create networks as direct teams. Employees and team members not only bring their personal networks to an organization, but expand the organization’s presence in added directions and sectors. Make sure adding employees expands your firm’s network presence instead of simply reinforcing it.
• Partners and alliances. A company can expand and strengthen its networks through agreements and business development relationships with others. Also in this category are direct sales programs, such as Tupperware and Mary Kay.
• Extended value chains. Firms exert influence over each of their business processes, from manufacturing and supply to distribution, sales, and marketing. Apple’s ability to flex its production and supply chain to create mass production while driving demand through its stores to generate the highest profitability per square foot is an example of influence in action over this type of network.
• External advocate ecosystems. The converted and curious. Who out in the world has got your company’s religion and where do they commune? Examples include support forums, online communities, and fan/supporter organizations.

Force Multipliers

The term “force multiplier”—again, any set of tools, advantages, or attributes that allow you to amplify your effort to produce more output faster, better, and cheaper—comes from the military. A machine gun allows a shooter to deliver more firepower than he would be able to shoot with a rifle. In other words, it’s a force multiplier. If you’re an organization and you want to grow, and you’re only reaching one customer at a time, or one market at a time, or one partnership at a time, you’re not going to grow fast enough to be competitive—especially with larger players that have full infrastructure in the marketplace.

But force multipliers create disintermediation that allows a smaller organization to not only scale up to serve existing opportunities, but also to create opportunities that a small organization could not have supported in the past. Think about Pebble Technologies and what they had to do to raise funds with Kickstarter. Using the force multiplier of Kickstarter, Pebble quickly built a community of investors that it didn’t know it had—individual users who contributed $100 or $150 at a time. This helped them raise a ridiculous amount of money to go build a watch, literally an LCD watch. This is what we’re talking about: tapping into the power of networks. Tapping into the power of P2P. That’s the force multiplier.

There are a lot of force multipliers out there, but I’ve settled on seven types: network sharing, user-generated content, crowdsourcing, flash networks, dedicated advocates, situation awareness, and predictive hotspotting. These sound abstract, so let’s define each one:

• Network sharing. Network sharing allows users to share ideas and information very quickly. The speed and reach that we have today in social networks such as Facebook or LinkedIn or Twitter make network sharing an important force multiplier that is designed to facilitate communications at the node-to-node, person-to-person level.
• User-generated content. User-generated content creates a force multiplier by allowing the audience and the community to provide content. This multiplier includes not just content but also user-generated connections. So, we’re able to use these user-generated capabilities inside an existing network to provide input, to design the next product, to think about how you go about, say, reviewing a restaurant. We’re actually seeing this approach in action now. It’s a new way for reviews to work, for ideas to come together. Yelp, Angie’s List, and other companies provide professional services and ratings in this arena.
• Crowdsourcing. Crowdsourcing basically involves convincing other people to help you do stuff. The idea is not new. For example, in Mark Twain’s novel Tom Sawyer, Tom convinces the neighborhood children to help him whitewash a fence, simply for the honor of being part of it. Technology enables crowdsourcing to deliver a high force multiplier by outsourcing both simple and complex work to a low- to no-cost model. There are different ways to influence and reward people within this model. The tasks have to be small enough and nimble enough that large groups can do them in little time. A great example of this is the web-based crowdsourcing marketplace Amazon Mechanical Turk. Another is the SETI project, where folks are aiding the nonprofit SETI Institute in trying to search for extraterrestrial life by providing their excess computing power to support the effort. Crowdsourcing has other uses than labor. Organizations such as Kickstarter and Y Combinator provide crowdsourced funding. Indiegogo is another example of that. A design marketplace like 99design gives you access to a talent network. And there’s oDesk, where projects can be proposed and talent brought together. Spigot is another company that creates a forum for crowdsourced ideas. The point is, you’ve got this array of ways to crowdsource, not only to raise money but to generate labor and ideas.
• Flash networks. Flash mobs were pioneered by magazine editor Bill Wasik as a social experiment and, to a large extent, a joke. But modern flash networks can actually be serious attempts to create pop-up networks. An example is the pop-up store that appears in the middle of a large crowd or event and then goes away afterward. It comes from a network’s ability to generate interest and attention quickly to bring people together. Here’s an example. In March 2011, Apple created a pop-up store in Austin, Texas, to sell the new iPad. The choice of location was far from accidental: it was three blocks away from the music and film festival South by Southwest. That means 20,000 technologists—media and digital influencers—were next door. So the ability to create a flash network on the fly is a massive force multiplier for being able to address a need. If you see massive demand for, say, merchandise from the Disney movie Frozen, how do you create something really quickly to capitalize on a trend, and of course, bring it back down when that trend loses steam? That’s where flash networks come in.
• Dedicated advocates. Consider advocates to be a step up from customer engagement. These are dedicated fans, dedicated partners who believe in your brand, your cause, your mission, your product. Advocates are the ones who talk about you. They refer people in. They answer questions on your forums. They write a blog about your organization. They do all this for free. Advocates are typically not paid, but they take their engagement with you and the relationship very seriously. As force multipliers, advocates are the first folks that support—and also may be the first to criticize—what you’re trying to accomplish.
• Situation awareness. This idea was pioneered by industrial engineer Mica Endsley. The technique is often applied to what we call time-dependent situations, such as aviation, or emergency services, or even the battlefield. Situation awareness means that your network has the right information at the right time to make speedy and informed decisions, the ability to go from reaction to prediction. The point is to connect and get from reaction to prediction very, very quickly and create a force multiplier so that you always have the right information at the right time and you can react and jump into something before everyone else.
• Predictive hotspotting. A force multiplier taken to the highest level is predictive hotspotting. This is the holy grail. In a digital network, in a digital world, the goal is to find out, Will something happen in the near future? And how is it going to happen in the near future? To what degree will that be true? Organizations are running streams of data through algorithms to make better predictions in terms of how they deploy their people, how they attack a market, and we’re seeing these all over. Law enforcement agencies use predictive hotspotting to decide on staffing, where to put police cars, where to predict a crime. Health-care providers are using hotspotting to figure out which clinics and which neighborhoods are going to be more useful to the local population and for determining treatment patterns and staffing needs. We’re seeing predictive hotspotting as a force multiplier because how do we convert all the data inside the system to the decisions piece we talked about earlier? How do we take these insights and ask the questions and predict what’s going to happen next?

Incentives

How do we appeal to people’s self-interest? Because in a networked economy, you’ve got to align with self-interest, otherwise you don’t have an economy. Incentives are worthless if they do not come from an understanding of what people want or need, so you have to listen before you incentivize, or your offerings will fall on deaf ears. Incentives also come from the other party’s self-interest. If you don’t align with that self-interest, you’ll find yourself quite alone.

If you want to be successful, you need to incentivize people or points, not organizations. You incentivize the node so that you can actually connect. Let’s face it: people are inherently self-interested. There’s a big difference between saying that and saying they are selfish. If you’re selfish, you give yourself priority above all others. But being self-interested means that you are aware of and clear about your preferences, and you act on them. There’s an attraction to what you find interesting. Most folks are ashamed to admit this because by admitting that we have preferences we open ourselves up to easy characterization and stereotyping. If I say I prefer X, it’s easy to assume I don’t care for Y, and few of us like coming off as contrary, argumentative, and maybe worst of all, selfish: “I prefer X and don’t care about anything else but me and my love of X.” But to truly understand what people are interested in and how they’re motivated, we have to observe their behavior. We have to listen. We have to identify the patterns from what they do and what they say they do, and we need to get to the root cause to understand their motivation, because that’s how we incentivize people. We have to understand that core need, that core self-interest, that drives someone.

So what’s the right way to incentivize? This is where we put together user profiles and organizational profiles based on self-interest and achievement drivers. For example, an employer who awards the employee of the month a parking space in a metropolitan area may have the wrong prize if most folks actually take public transit to work. Great idea, great concept, but wrong reward, and you’re not going to get a lot of response. If the organization is an environmental nonprofit, a parking spot might not fly for different but equally powerful reasons. So, how does our imaginary employer know what its employees want? How does our imaginary organization know exactly what customers are looking for and how to get them incentivized? And how do you figure out how to get this information without being invasive or overly direct? This is really the question.

We’ve got to think about how to create appealing nonmonetary incentives. A 2011 Constellation Research study showed that professionals and creative employees are motivated 41 percent more by nonmonetary incentives than they are by monetary ones. The research looked at decisions employees made, not at their verbalized or surveyed preferences. These findings jibe with a larger body of current research that indicates employees are significantly more motivated by how meaningful their work is, and the mastery and purpose that they have over it, than they are by traditional incentive systems. The point is that a system of carrots and sticks or pats on the back for good work and “wags of a finger” for bad work as a relic of a centralized twentieth-century industrial economy doesn’t reflect these P2P networks, and it is definitely less relevant in a P2P business environment where self-interest assumes center stage. Many of us have seen this in Daniel Pink’s 2011 book Drive: The Surprising Truth Behind What Motivates Us. But there’s more than employees involved here. Incentives for customers in the market they represent are often nonmonetary too.

These nonmonetary incentives can be divided into three important categories: recognition, access, and impact.

• Recognition. In this category, it’s badges and points and loyalty cards and leader boards and customer-of-the-month plaques. These are all examples of recognition, or how a company rewards customers for increased levels of involvement. Our research indicates that 15 percent to 25 percent of early adopters in a community will engage with a company for recognition. Everybody wants their day. Everyone wants their fifteen minutes of fame. And more than 60 percent want further participation influence through recognition. Recognition is about having someone say, “Hey, we noticed you.” And that’s important. That nonmonetary act of just being noticed by someone—that is, being perceived as important to that other individual in the network—creates a lot of interest and facilitates the process of getting to an engagement.
• Access. Access refers to privileges that more-engaged individuals get over less-engaged people in that node. So, in the P2P network, many organizations will allow engaged customers special roles as product testers and moderators. These people get to do things that no one else gets to do because of what they’ve accomplished or what the company sets as the reward. One classic example is how elite-status frequent flyers are granted entry into a club room. In a consumer environment, this may mean that you get to see a product. You get to be at the product launch before anyone else. You get to test the product and connect with it before anybody else gets to. In an employee situation, it might mean you get access to a special set of perks that no one else gets. Roughly 10 percent of a community will see access as an intrinsic motivator. More than 80 percent will be influenced by a desire for greater access.
• Impact. This is the degree to which a customer or employee may influence a future direction of a product or company. In a P2P network, by definition, impact is only attained by the most-committed users. In a P2P network, only a few people are actually driving a lot of the conversation, but they’re influencing a lot of other folks. Not everybody takes an active role: organizations on average see just 27 percent of their network members as fully engaged members. Of the engaged members, 13 percent drive 80 percent of the influence. Only 5 percent to 10 percent are “superusers.” These are people who want to build a better product. These are people who want to co-innovate and co-create with you for free. Not monetarily. They want to build something. They want to change something. These are very, very valuable folks in the network, especially in a P2P network. And it’s essential to identify them.

The challenge of building these incentives is, Who are we creating value for? And for what? How do we determine what next actions we want to incentivize and the relative value to the recipients? Would dinner with the CEO of the company be worth more than the opportunity to audition for the next TV commercial? A smart marketer knows that the answer is almost always, “It depends.” And yet the marketer can’t march into a strategy meeting and throw “It depends” on the whiteboard. But then, how do you create a kind of measurability around these incentives, and how can you predict what the customer market will do? And so, and this is the important thing, we have to think about the relative value to the other person in the P2P network. The other person in the P2P network is what’s key. This is how you drive these transactions. This is what we’re trying to match to take friction out of the system.

That brings us to the conversation around convenience. And in these P2P networks, let’s be real: laziness is human, so we have to take advantage of it. If you pave the path of least resistance, it will be easier for your customers to engage with you. That means you have to conduct business on your customers’ terms. They aren’t always right, but in a P2P world, these are the only terms that matter. You can educate them. You can change their behavior over time, but at this point, you have to conduct business based on what your customers want.

Any time you have friction, you get loss. And what we want here in convenience is to drive down friction. But if people are inherently lazy, organizations are even lazier. In fact, most of us will stick it out in a bad situation because bad situations seem easier than the work required to change them. As customers, we will only switch options if it’s easier or more convenient. But easy does not mean it’s right for us. Easy just means it’s easier. In a P2P world where an entire network of options and choices are a click away, or a connection away, or a button away, easy is ultimately the only factor that matters. Small wonder then that we’ve labeled an entire field of design as “user experience.” User experience can refer to how comfortable the seat on an airplane is or how close the tables are in a restaurant. But primarily it means how quickly can customers complete their intended actions with a minimum of time, confusion, and holdup? How do we make it easy for folks? How do we drive down to this point that people are ultimately lazy, and if you can make it easy for them, they will do what you want them to do?

If you can streamline a process and eliminate the barriers, you can achieve a frictionless experience, and this is what we’re trying to do. The concept of a frictionless experience is one in which barriers are removed that take away from the experience. As you can imagine, this is completely subjective: one hotel guest may want a soft alarm clock to nudge him out of sleep while a business traveler might want a blaring, lazybones alarm to get the day started. Frictionless experiences are by nature customer focused. Frictionless experiences allow people to set their preferences and make it easy. So, for example, let’s take a coffee shop. If it remembers your top three orders and allows you to order on your way there, pay by mobile app, and just pick it up in line as you get there, you’ve reduced the friction caused by the need to stand in line to order and then wait to pay and deal with cash and change. Instead, the only experience you have is waiting for the coffee to be handed to you. A coffee shop may want to have customers wait in line so they’ll buy additional items, however. Because they can actually sell more items, and they can upsell on the fly if people are waiting in line. But if certain customers want speed, a frictionless, order-ahead experience may be ultimately both to their benefit and to the benefit of the coffee shop. The shop can process more customers faster with the convenience approach. The customers perceive the shop as understanding their time constraints, and an organization that creates that perception—that convenience equals anticipating a customer’s needs—can not only predict but influence customer behavior. Are we willing to trade some of that convenience and optimization for more revenue, instead of actually trying to upsell something? This is what we’re trying to do.

So how do you design for this kind of convenience? Well, there are different mantras. One is “Keep it simple, stupid.” Ease of use and simplicity ultimately trump complexity. Give it to me with no manuals, no training. The offering should be easy to learn, repeatable with minimal effort, and not be complex. The simpler and more efficient the design, the more customers see the organization as being on their side, and the more likely they will be to switch if they have to. Faster means taking out process inefficiencies. How do we cut through the red tape? How do we take out something that’s actually a barrier? How do we take out a middleman? Faster doesn’t mean lessened or reduced experience. Faster is about being first. Faster is about not waiting in line. Faster is just about being fast.

Beginning with the end in mind is how we understand the customer’s motivation. Solutions must solve the core problem, not simply address the symptom. And so we’re getting to “purpose built.” Purpose built becomes more important than general and vague. When we’re trying to drive down friction and make things more convenient, the more something is purpose built, the more likely it’s going to relate to someone. We have to get to specificity.

And you want to turn it into a verb. When you make a copy, you Xerox it. To search, you Google. Or Bing. Success comes when you’ve set expectations on the outcome and what you deliver becomes a simple action verb. This is going back to the brand promise. When we deliver a promise or an experience, we turn it into a verb, and people actually equate that verb with a convenience. We equate that verb to the action, that brand promise. That’s really where we want to go.

While customers aren’t always right, you do have to conduct business on your customers’ terms. And this is why the convenience element is so important in these networks. If you add friction to the process while a competitor is reducing friction, you’re going to lose nine out of ten times. Convenience has to be defined around that P2P network’s point of view. Do you design your store so there are only staff people behind the counter? Or do you make sure every clerk standing can actually check you out? If it takes someone five minutes to wait in line, versus five seconds to check out, guess who wins? If you’ve seen an Apple store versus a CompUSA—if you remember those—you know the answer. Convenience wins, and this is why it’s so important in these networks.

Freemium

In the area around self-interest, we have to talk about value exchange. If you’re exchanging fair value, you actually conduct a transaction. A great view of this is how the concept of freemium works in networked economies. In his 2009 book Free: The Future of Radical Price, author and former Wired editor Chris Anderson explains, “Freemium is the inverse of the traditional free sample. Instead of giving away 1 percent of your product to sell 99 percent, you give away 99 percent of your product to sell 1 percent. The reason this makes sense is that for digital products, where the marginal cost is close to zero, the 99 percent costs you little and allows you to reach a huge market. So the 1 percent you convert is 1 percent of a big number.”

In the enterprise software world I came from, organizations often pay up to $5,000 a person for a software license. If you have 500 employees, that means $2.5 million in software costs. On top of that, companies also pay 20 percent a year for software maintenance and support—which means another $2.5 million every five years. Thus, enterprise software is a very expensive proposition for customers and a very lucrative value proposition for software publishers. However, by dealing with only the very top of the market, those same software publishers have put a natural limit on the number of customers they can reach.

This has opened up areas of the enterprise software market to companies like Atlassian, Box, Evernote, Hootsuite, and Yammer that work on freemium models. Instead of paying millions for content management and social software, an organization can start with the basic feature set and work its way to premium pricing as its needs grow. The premium offer often starts with additional features that add value. These could be the ability to share a file, gain better reporting or metrics, increase flexibility and control, and receive more storage.

Evernote subscribers gain supersized uploads, better security, offline access, and top priority support. Yammer customers get better support, Microsoft SharePoint integration, and Microsoft Office 365 integration as they increase their price per user. The results show how many users are willing to pay for value. Evernote converts 3 percent of its free users to paid membership. Yammer claims 19 percent freemium-to-premium conversion.

An offshoot of this model is Box. Box allows individuals to join for free, while charging enterprises. About 8 percent of individual end users have converted their organizations to become paid enterprise customers. As you can see, this is networked economies in action. Paid enterprise Box users get more storage, more users, and more collaborative features. Another offshoot is Atlassian, which takes freemium to another level with cause marketing. Atlassian takes a micro payment for its software and donates the money toward a charity or cause. In 2010, the company donated $500,000 of $2.5 million in revenue to the charity Room to Read.

Despite the sexiness of these models, there are challenges. Let’s take a look at the newspaper industry, which has been decimated around the world. Though a few markets, such as India and Brazil, have seen subscriber growth in the print form, at most papers advertising revenues have fallen as printing and transportation costs have risen.

One solution is to implement a paywall. A common argument against paywalls is that open access brings a larger audience, and that requires more advertising revenue. In a world where readers share content and links through social networks, the theory is sound. The more free access, the greater the sharing, the more eyeballs, and the higher the rates, right? Unfortunately, online rates are only a fraction of print ad rates. Newspapers and other print media have not made up the difference in volume.

In 1995, the Wall Street Journal made a controversial decision when it introduced the Wall Street Journal online edition—and kept it behind a paywall. To critics’ surprise, the Journal had signed up 200,000 online subscribers by 1997. The Journal is now the United States’ largest newspaper by circulation, at 2.3 million in 2012—of which 800,000 were digital-only subscriptions.

What seemed a crazy idea in 1997 has now emerged as a trend. Eleven out of the twenty major newspapers in the United States have announced or have plans to implement paywalls, despite readers being accustomed to “free” news. In March 2011, the New York Times unveiled its paywall. By the end of 2012, the Times was earning more from circulation than from advertising, helped by the growth in digital subscriptions. Of $768.3 million in circulation revenue in 2012, 12 percent came from digital.

The success of the Wall Street Journal and the New York Times stems from the high-quality journalism they produce and the brand perception that the average, informed reader is missing something in going without them. That reader probably works in business or finance in the case of the Wall Street Journal. In the case of the New York Times, the company is trading on its century-and-a-half-long reputation as the world’s news source of record.

In both cases, the audience is both consuming quality journalism and perhaps participating in discussions, circulating articles, and arming themselves for upcoming dialogue with their family, colleagues, and friends. In the rarified air at the summit of the newspaper industry, the principles of P2P are working and are at scale.

Though the average local paper may have its community in place, its offerings may not be seen as indispensable and its readership might not be large enough to support the resources necessary to generate enough premium content to justify erecting a paywall.

Even a paper as large and prestigious as the Washington Post has resisted. Though seen as a national paper, the print edition is not nationally distributed, despite the fact that 90 percent of its digital traffic comes from outside the DC metro area. A decision to implement a paywall in 2012 was halted due to reader and industry outcries.

To be sure, some old-line media companies have succeeded in monetizing nonjournalism areas of their business. The Washington Post Company owns the Stanley Kaplan education business. Atlantic Media, publishers of the Atlantic magazine, have a burgeoning live-event business and a series of web portals that serve well-off niche sectors of its readership.

The debate over paywalls and journalism is far from over. Yet the rather spotty history of success demonstrates the difficulty of executing freemium models well—what offerings, for how much and to whom, the DNA of value.

A forcing function in the networked economy is how much folks will trade for convenience. And this is where monetary and nonmonetary value exchange comes in. Privacy is a great example of this, and there is no better example than Facebook, where value exchange is all about trading privacy for convenience

Facebook understands convenience and networked economies. It is the poster child for this idea, and it started from day one. Facebook gets its users to share massive amounts of information about themselves from photos, comments, actions, and interactions—and it gets them to share by making it insanely convenient.

As of August 2012, Facebook’s content consisted of over 2.7 billion likes, 300 million photos, and 2.5 billion pieces of user-generated content—500 terabytes of data in all. This is all information that users willingly provide to Facebook and that Facebook then uses to continually make its processes easier. Through facial recognition, Facebook can conveniently identify your friends in each photo. Your likes have been categorized so you see what your friends like as well. The more you put in, the easier the user experience becomes.

Along the way, Facebook is getting better and better at predicting what you’ll do next and what you might want to spend money on. With that insight in hand, Facebook can get advertisers to pay millions to influence users’ next set of actions and decisions.

Caveat emptor reigns when people pay nothing to use a product in a world where they are the product. The convenience of Facebook and the free nature of the product means all your data, your preferences, your network, and your actions are owned by Facebook, to mine and sell to advertisers as it chooses. Facebook now knows more about you than your government, your closest family member, or maybe even you yourself.

This all sounds creepy, perhaps even disgusting. But Facebook is not the IRS or the Social Security Administration. No one is required to participate, and those who want to may conduct their relationships without ever logging in to Facebook. But Facebook’s very ubiquity makes opting out difficult and less socially acceptable—the digital-age version of not having a telephone or indoor plumbing.

It’s been argued repeatedly that Facebook should make it easier for users to control which of their data is shared with whom. That level of difficulty (high to too high) reveals the company’s intimate understanding of the law of convenience. Facebook knows that just a few extra hurdles, and its users won’t bother. Why? Because Facebook makes it too easy to get too many tasks of digital-age life done. And the fact that it charges nothing for use raises the question, “Well just what should Facebook be doing to make money?” The company is simply the largest example of what we already know about the space it pioneered: a service that charges nothing for its use views its users as the product.

Will those users stop trading privacy for convenience? And at what point? The law of convenience runs deep. Noted technology industry guru Tim O’Reilly argues that “Facebook is creating more value than they capture.” He’s right. The trade-offs between privacy and convenience will continue, but convenience usually wins.

Privacy is not dead. It’s only dead if we choose not to make it convenient.

Co-Innovation and Co-Creation in the Platform

When one mentions General Electric, one normally thinks of a company that was the poster child of the industrial age. However, GE is rapidly applying disrupting digital business through its software embedded in its machinery as well as through the Internet of Things. But going it alone is not enough for GE to succeed. Early on, GE realized that the company could not put together all the components, connections, and technology for large-scale projects on its own.

GE formed the Industrial Internet Consortium to bring together partners to co-innovate and co-create new business models and deliver deep industry expertise. Partners include obvious system integrators such as Accenture, Deloitte, IBM, and Tech Mahindra. Technology members even include potential competitors such as Fujitsu, Mitsubishi Electric, and Toshiba.

The power of the networked economy is stronger than the competitive forces. While GE uses its proprietary Predix big-data capture and analysis platform as the backbone, the product is built on open source technologies such as R and Spring. That open source component enables partners to extend capabilities with their own intellectual property. The result is a collection of what GE calls Predictivity Solutions, which are driving $1 billion in annual revenue.