Fighting a war with no guns.

A government makes an unpopular move inciting popular unrest and some rioting. The real damage happens when the rioting moves to the ubiquitous network that everyone in the country depends on for virtually all activities. Rogue botnets infiltrate computers around the world which in turn become “zombies,” attacking the websites of newspapers, banks, and even leaving the country’s Parliament without email communication for days. Other countries move in to help identify and stop the attackers and 19-year old man is arrested as the mastermind behing the entire operation.

A new sci fi novel? No. Real events that happened in Estonia the last few weeks after the government removed a statue of a WW II soviet soldier. The NY Times has a great article on the events that took place between April 26th and May 19th in the small Baltic state.

As networked technologies, especially Internet-based ones, become both ubiquitous and central to every day life, our vulnerabilities increase as well. The Internet, as a physical network, is built to withstand all kinds of attacks and survive. It’s redundant and resilient in its design. But the information and services that use the Internet are much more vulnerable. Disrupting key applications such as email, banking, and web access, can cripple an organization as small as a tiny start-up and as large as the U.S. At the country level it could mean disruption of food and water supplies, electricity, and medical services. That could be enough to start physical (not virtual) unrest and violence among the population. In the end, a country can be destroyed from the inside out, without a single bullet being shot.

This may sound extreme and speculative, but with talk of countries like the U.S., Russia, and China developing information warfare programs, the prospect of wars fought at the information level becomes more real everyday.

The power of the online mob wins at Digg.

A user revolt has just happened at Digg (you can read about it at Techcrunch, BoingBoing, the NY Times, and TextYT). Digg, for those who don’t know, is a social content site where users can post links to articles and websites and other users can comment on them and vote them up (digg them) or down (bury them). Stories with most diggs float up to the top of the list and the front page of Digg.

After someone posted the decryption key for HD DVDs, Digg got a request threat from the company that owns the rights to HD DVD to take the article down. Digg caved in and did that.

Well, the Digg community was furious. Soon, the entire front page of Digg was full of stories and article posted by users with the same decryption key. Digg kept taking them down and suspending users. But eventually, the mob won. Digg co-founder Kevin Rose posted the following:

Today was an insane day. And as the founder of Digg, I just wanted to post my thoughts…

In building and shaping the site I’ve always tried to stay as hands on as possible. We’ve always given site moderation (digging/burying) power to the community. Occasionally we step in to remove stories that violate our terms of use (eg. linking to pornography, illegal downloads, racial hate sites, etc.). So today was a difficult day for us. We had to decide whether to remove stories containing a single code based on a cease and desist declaration. We had to make a call, and in our desire to avoid a scenario where Digg would be interrupted or shut down, we decided to comply and remove the stories with the code.

But now, after seeing hundreds of stories and reading thousands of comments, you’ve made it clear. You’d rather see Digg go down fighting than bow down to a bigger company. We hear you, and effective immediately we won’t delete stories or comments containing the code and will deal with whatever the consequences might be.

If we lose, then what the hell, at least we died trying.

This is fascinating stuff. This isn’t just collective intelligence at work. This is collective activism at work and it seems to have worked. Of course, some might wonder what would happen when the mob is wrong or has the wrong intentions. Some might say that this was the case here, where intellectual property rights were being challenged.

I’m not going to try to judge this is good or bad. I am just going to point out how powerful this can be.

In a lot of science fiction writing, a classic nightmare scenario is that where networked artificial intelligence built by humans becomes so powerful that it takes over the world. Maybe the scifi writers got it wrong. Maybe what we should really be worried about is networked human intelligence (or lack thereof), or the power of the online mob. Unless of course, you are like me, and you believe that humanity as a whole can be good and smart and can have the right intentions, and that it’s only a minority of people who are evil and it’s when they get a lot of power that all hell breaks loose.

Dell may change its direct sales model.

Michael Dell sent a memo to Dell’s 80,000 employees on Wednesday saying that he is considering changes to Dell’s strict direct model of selling computers (read about it at the NY Times). Dell’s direct model is one of the most talked about business models of the last two decades. Dell used IT and efficient networks to integrate its entire supply chain so well, that computers were produced only when they were ordered, lowering inventory costs and eliminating the need for costly, unreliable demand forecasts.

Today, however, Dell is facing declining sales and revenues, partly because laptops are much harder to build on-demand when they are customized, and therefore must be built in advance.

In his memo, Michael Dell, who recently took over the helm at Dell again, writes that

The direct model has been a revolution, but it is not a religion.

This is a long time coming from the company which has refused to change its way of selling despite its economic woes. This doesn’t mean that the direct model is bad. It’s still an amazing model that when done right, for the right products, and with the right partners in the supply chain, can be extremely cost efficient.

What’s important is that no business model should be treated as a religion, to borrow Michael Dell’s words. A business model should be seen as an organic, adaptive, flexible tool a company uses to create business value. A dogmatic approach to any business model is doomed to fail as the company’s environment (both external and internal) inevitably changes. A true visionary CEO will constantly reevaluate her or his company’s business model and adjust it when necessary.

Otherwise, by the time change comes, it may be too late. I hope that’s not the case for Dell.

It takes a village to make a laptop.

The New York Times today report that Amazon will expand its program called Fulfillment by Amazon which allows independent sellers to use its network of distribution centers to fill their orders. Up to now, it was available only for sellers who listed their products on Amazon but they are expanding it to independent sellers everywhere, even eBay.

Amazon’s distribution system, with more than 20 giant warehouses and a well kept secret inventory management system, is something that the company is very proud of. But they also recognize that in today’s world, it’s just another service that can be made leveraged to create revenue outside of Amazon’s own core operations. Sure, they may be making it easier for some sellers who list their products on competitor sites (like eBay) to sell their stuff and in that way increasing their competitors’ business and profits. But they also know that these are sellers who would have sold their products on the competitors’ sites anyway. Instead of trying to hijack sellers by making it mandatory to list items on Amazon in order to use Fulfillment by Amazon, they are letting them sell anywhere they want and they are making money by providing them with a service they already know how to do very well.

In today’s highly networked business environment, this is only a sign of things to come. It will become less and less possible for companies to maintain their competitive advantage by producing and bundling all their services within themselves. Instead, market mechanisms will prevail and more and more services that were traditionally kept within a company will be bought and sold in a networked market environment. So, what will be left of the traditional company, you ask? Well, things like the end physical product (the toaster, the TV, the car) with its brand will be what the company is all about. Same thing with the end service product (the marketing campaign, the tax preparation). But how that final product or service is put together and delivered, where the parts come from, who coordinates the activities, and so on will all increasingly be coming from outside the companies.

The reason is simple: lower transaction costs. These are the costs of search and coordination which in a highly integrated and networked environment decrease dramatically. It has become easier to go out into the market and outsource a service that up to now had to be done inhouse. The result can be lower cost and higher quality, especially since this service can now be provided by another company that specializes in it (hence the higher quality) and can take advantage of economies of scale (hence the lower price). That’s exactly what Amazon is providing with the service of order fulfillment.

 This isn’t speculative fiction by the way. This is happening right now. By the time your customize Dell laptop arrives at your doorstep, dozens of companies have contributed with parts, knowledge, labor, and delivery services to get it there. It didn’t all get produced in a giant Dell factory from beginning to end.

Radical transparency and the death of spin.

I often talk to my students about the power of today’s networked information environment in shaping reputation. Keeping secrets has become extremely difficult, for businesses, politicians, and even 15-year-olds. All you need is one person (often yourself) to put the information in digital format and post it somewhere where others can read it. The network effect can be frightening. In a matter of minutes, it can become world-wide news. And even if you take the information down, it will always exist, cached on servers everywhere just waiting to be found. The result can be tremendous pressure on companies and politicians to clean up their act and be accountable. And I’ve always told my students, some of whom are budding CEOs and CIOs themselves, that the way to control your reputation is not by controlling information that is made public, but by making more information public yourself.

Well, enter Wiredmagazine, which has done a fantastic job in reporting on this idea and giving it a cool name: radical transparency. It has several articles on the subject but this one in particular tells the story beautifully. In fact, the whole article was written in the author’s blog inviting reader feedback, some of which is featured in the printed article. As the article’s author, Clive Thompson, says:

The Internet has inverted the social physics of information. Companies used to assume that details about their internal workings were valuable precisely because they were secret. If you were cagey about your plans, you had the upper hand; if you kept your next big idea to yourself, people couldn’t steal it. Now, billion- dollar ideas come to CEOs who give them away; corporations that publicize their failings grow stronger. Power comes not from your Rolodex but from how many bloggers link to you – and everyone trembles before search engine rankings.

Some of you may be thinking: What about industrial secrets? The secret recipe of Coke? As Clive points out:

[Some of my blog readers] enjoyed ripping apart my new theories. Several pointed out that secrecy can be necessary – CEOs are often required by law to keep mum, and many creative endeavors benefit from being closed: Steve Jobs came up with a terrific iPhone precisely because he acts like an artist and doesn’t consult everyone. In fact, secrecy is sometimes part of the fun. Who wants to know how this season of 24 is going to end? It’s not secrets that are dying, as one reader named gjudd noted, but lies.

Secrets can be useful tools for competitive advantage. Even though there are many cases when even those secrets are better left in the open. Just look at the success of all the open-source software out there.

So it’s not secrets that are dying. It’s spin control that’s dying. This spells trouble for PR firms.

What’s making me even more excited is the impact this is already starting to have on politics, where transparency is a dirty word and spin control is god. Remember George Allen’s “macaca” comment that got posted on YouTube and cost him a Senate seat?

Politics is going to be fun again.

I am Joost! On-demand online TV.

About a week ago, I got an invitation to become a beta tester of Joost for which I signed a while ago. Joost is the latest project of Niklas Zennström and Janus Friis (founders of Skype and Kazaa). Just like their two previous applications, Joost uses a peer-to-peer (P2P) network to deliver digital content. In Kazaa that consists of general files (though mostly music and video files) and in Skype it consists of digitized phone conversations. In Joost, the digital content is TV video. The idea is that I can open Joost on my computer which is connected to the Internet via broadband and have on-demand TV content available to me. What’s the real innovation? The use of a P2P network. Instead of all the users getting the TV content served to them by a few very powerful servers, all users’ computers act both as clients (receiving video) and servers (sending video to other clients). In this way, the larger the network, the more powerful it becomes. The opposite of a traditional client server model where as the number of clients increases, the servers become less and less able to serve them all.

So, being the geek that I am, I got really excited about trying Joost. Installing it was a breeze. I opened the application and sat back to be amazed.

Well, let’s just say there’s a reason why there is such a thing as beta testing. While the interface is slick and the promised value-added features are cool, the actual content deliver was often jerky with sometimes garbled sound. Now, I know this may also have to do with my network at home and even with my laptop which is not the newest machine in the world. But it fulfills all the recommended specs in terms of hardware and my broadband connection is a through standard Time Warner cable modem. So, most likely, the sub-par quality is just due to growing pains. And maybe because the P2P network itself is still too small to really be able to distribute content smoothly and efficiently.

Oh, and another problem. The content kinda sucks. Joost is still trying to make deals with major providers. The incentives for them could be big. For example, if I am watching a show, let’s say “Grey’s Anatomy”, on my laptop using Joost, I can actually have advertising shown to me that is specifically targeted to me. Not the general advertising shown on a regular TV based on the large demographic to which I am assumed to maybe, probably, hopefully belong. More target advertising is more effective advertising is more expensive advertising.

Joost is still new and needs to prove itself. But the two guys who have created it have already proved to be amazingly disruptive innovators. I’m sure that by the time Joost is out of beta, it will not disappoint.