MSc-IT Study Material
June 2010 Edition

Computer Science Department, University of Cape Town

The New Economy

In 1999 the networked organisation is commonplace, working within electronic commerce, and in turn within a whole set of strange and entirely new rules for a new sector of the economy.

But perhaps you think the importance of the new economy is exaggerated. The next sections look at some of the new businesses principles in this area and what is being said about the New Economy.

Industry Growth

Internet business has grown exponentially over the last few years. In 2005, the Internet reached one billion users, while Nielsen//NetRatings estimated in 2008 that the there was 1.463 billion users.

New Rules

The scope of the change in thinking and business practice is given, for example, in the twelve themes of the new economy defined by Tapscott (1997) as follows:

  • a knowledge economy

  • a digital economy

  • involves virtualisation

  • is molecular not mass

  • a networked economy

  • a disintermediated economy

  • based on convergence

  • an innovation-based economy

  • presumption driven

  • immediate

  • global

Putting these rules into practice can be exemplified by the following two articles summarised from the online magazine Fast Company:

How Steve Jurvetson Does Deals

Steve Jurvetson, 32, likes to boast that his firm, Draper Fisher Jurvetson (DFJ), has financed more Web companies in the past six years than any other independent venture-capital outfit. Many of the deals have been blockbusters. Microsoft bought Hotmail, a DFJ company, for $400 million. Yahoo! bought Four11 for $95 million. CyberMedia Inc. went public — and was then bought by Network Associates for $130 million. "We don't sit around doing lots of deep thinking," Jurvetson says. "We get a sense of what will be a billion-dollar opportunity, and we look for companies. We get to closure before others see that opportunity."

Here are Steve Jurvetson's rules for Internet deal making:

  1. Get fast or get lost. "At most venture-capital firms, partners gather for a Monday meeting to review the business plans that they've received and to make decisions on how to proceed. We don't wait until Monday. We make decisions on an ad hoc basis, and we take iterative steps throughout the week — in person and by email. We've also engineered our due-diligence process to be minimal. You've got to close deals quickly, or else you'll miss out."

  2. Bigger is better. "The '800-pound gorilla' in a category tends to get the dominant share of business and financial partnerships. Many advertisers and media companies don't want to spend time with small properties. And that makes it tough for new entrants.

    "Hotmail, for example, was doubling in size each month, but it took six months to reach 1 million users. Until it reached that point, the company was off the industry's radar screen. By the time people came to realise that free, Web-based email was indeed a hot idea, Hotmail was adding one million new subscribers a month."

  3. Mix work with play. "Lots of deals happen in situations that aren't 'pure work'. We play a weekly ultimate Frisbee game with a group of entrepreneurs: We signed the term sheet for Four11's seed financing after one game. We did another deal during the 1998 NCAA Final Four tournament."

  4. Intuition is as important as analysis. "We never use Excel spreadsheets. We don't build models. We look for entrepreneurs who want to change the world — people who are going after big opportunities. There's room for analytical error, but there's even more room for phenomenal success."

  5. Rules? There are no rules! "On the Net, the old investment rules have been turned on their head. Investors in the software industry used to avoid low-price products like the plague. But on the Internet, free products can generate huge market value. If you let too many old rules govern your deals, you'll never be a leader."

Streamline

Tim DeMello, founder and CEO of Streamline Inc., wants to make your life easier.

His company uses the advanced technology of the Web to alleviate some the most mundane hassles facing people who are overworked and overstressed — including buying groceries, doing the dry cleaning, renting and returning videos.

Streamline customers sign up with Tim's company and then let it do the dirty work for them.

Here's how his company works: Streamline agents visit customer homes and take stock of what's in the fridge and the cupboards — and even scan the bar codes to develop a personal shopping list. Then customers do "one last grocery shop" and Streamline records what they buy. At that point, customers begin ordering groceries off the Web (or via fax), and Streamline delivers them to a special refrigeration unit it has installed in their garage.

Just as exciting as the business opportunity Streamline represents is the business model it's created.

To Do

Visit the Fast Company Website where you can read about other examples of businesses and organisations breaking the old rules and formulating their own.

Now do Review Question 1.