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Impact Of Decentralization On Technology-Driven Industries

Anil Saigal
12/06/2003

The last monthly meeting of TiE was held on November 24, 2003 at the Burlington Marriott. The speaker for the night was Kevin Werbach, Founder, Supernova Group. He currently serves on the advisory boards of SocialText, Participate Systems, Kasenna, and the Genesys Angelbridge Fund. The sponsor for the event was General Catalyst, a three-year old venture firm with $650M in investments. There were about 150 people in attendance.

The theme of Kevin's talk was Decentralization and Disruption. According to Kevin, we currently live in the age of decentralization. Decentralization deals with intelligence moving from the center to edges and is an exorable shift, which is neither smooth nor uniform. It is significant to the extent that it redefines the value chain of any industry that touches digital networks - and all industries do!!

Decentralization is a necessity as one works with more powerful computers, looks for pervasive connectivity and deals with intelligent devices and extreme mobility. In addition, there are a number of supporting trends in Broadband, Device Commoditization, Standards, Business Demands, Globalization, Collaborations and Outsourcing, which are pushing for further decentralization. Additional decentralization forces include more edges than centers (development of unexpected killer applications), economic (low upfront capital cost) and scaling.

Music, Telephony and Enterprise Software industries are being uprooted as decentralization and disruption takes over. For example, in the traditional music industry, the present sequence might look like:

Artist - Labels - CDs - Radio - Stores - Users

In the future this sequence might look like:

Artist - Labels - Cameras - Ringtones - Phones - Users
or
Artist - Labels - PC/CE Vendors - Home Networks - Users

The telephony industry is being squeezed on one side by wireless technology and on the other by Voice Over IP (VOIP), which does not bode well for its future. Similarly, the enterprise software market has to deal with hosted applications and companies like salesforce.com on one hand and open source on the other.

So what does this mean? For example, even though AT&T was aware of the upcoming disruptive technologies and concept of decentralization, why didn't they build the net? There are a number of reasons which include they couldn't, it would have threatened their core business, they weren't allowed to and there was no money in it.

As a result of decentralization, the industry structure is continuously evolving in which it is moving from vertical integration to fragmentation to platform building in the future.

Despite the difficult economy, widespread innovation is occurring, but linking that innovation to successful business models is a crucial challenge. Some of the challenges are:

Balance between center and edges
Scaling
Mapping between machines/people
Plumbing
Openness
Law and policy
Business models

According to Kevin, the following companies have developed certain models over time which have attributed to their success:

Microsoft - own platform
Dell - commodity producer
eBay - scaling
Google - complex technology
Apple - niche market

Finally, one must not only be aware of the legislative and regulatory forces driving the market but also active in helping shape it.



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