The New Network-Based Economy: The Basics
Several years ago when I graduated from college and dove into a job hunt, my mother incessantly reiterated, “It’s not what you know, it’s who you know,” and emphasized the necessity of “networking.” I thought this sounded too sickeningly corporate for a young designer and discharged the advice only to have to come to terms with it again and again. Building a network is the best thing you can do for your profession—this doesn’t mean you have to know important people, just enough people. We are now seeing the same concept explode on a global scale in the shift to a modern network-based economy. This week’s posts will explore a different implication of this shift.
A network is a complex system, an arrangement of units connected to other units in a dimensional, non-hierarchical fashion where any unit can interconnect to seemingly infinite units. In the social network it is the system that connects people. Place this scenario in a market, and you get a network based on how businesses and customers are connected. Until now, markets have functioned more linearly: materials, to producer, to retailer, to customer. The emergence of the information society has laid the groundwork for the growing network economy in which more people than ever are connected through networks where each member adds value and benefits from the value created by connections to other members. It is not merely businesses creating and giving value; it is the “prosumer” concept of people in a network both producing and consuming content, goods and services. In linear markets, goods and services are traded in exchange for money or collateral. In a network a company has connections that might or might not lead directly to profit, but based on the value of its connectivity to other units, will benefit indirectly. “The context for everything we do is the networked economy, and the central purpose of the networks is to establish and maintain relationships.” (Stephen Emmott, as cited in Information Anxiety 2, Wurman). This means that at its core, doing business now functions on connectivity to people, networks, systems and platforms.
A quick overview of network-based market platforms:
Social Media Platforms: It would be a waste of breath (or finger clicking) to explain them—we know them well: they connect people socially. They make money through advertisements that help businesses directly reach their target audience and are an immeasurably powerful tool in connecting people around the globe for business and non-business objectives. Think: Facebook, Twitter, Instagram and Tumblr.
Service-based Platforms: These platforms connect users to information, places and services. For example: Airbnb (helps users find people renting rooms), Yelp (helps users find restaurants and more), Tripadvisor (gives users feedback on travel destinations), Angie’s List (allows users to access reviews on services in their area); also includes any information-providing website, news website, etc.
Sharing and Subscription-based Platforms: These companies utilize their network to charge participants for usage of their goods or property (including virtual property). This type of company’s profits are directly related to how many people are in its network. Examples include Zipcar, Spotify and Dropbox.
Linear (traditional) Market Platforms: Basically online shopping—user purchases from seller, seller sends user an actual product. These platforms are a driving factor in the economy, but also transforming traditional market-economy-type businesses into more network-based businesses. In the freshly-evolved economy, these companies must create a larger online network in order to reach customers. Examples are any store that allows customers to order a good or service. Within this category there are also platforms that allow consumers to become the seller. Think: eBay, Amazon and Etsy.
What are the biggest differences from the old market and the new network-based market? The latter must still operate within economic principles—the basics of supply and demand are still in affect. Services and platforms must still make money. We still have a “market economy” where decisions on investment, production and distribution are made based on supply and demand; decisions about prices and allocation of goods are made considering current market affairs. But now those are often not allocation of physical goods (though we ship more goods than ever), but rather the opening and connecting of new networks of people and businesses. With the blooming of the information society, decision-making data is now cheaply accessible to anyone with an internet connection which decentralizes business decisions and over-sized establishments. On a macro scale, the global production network has evolved to a more spherical set-up. As Thomas Friedman explains it, the long-standing set-up in the goods production market was that products used to be imagined in America, sourced and made in Asia, then sold to America and Europe. Now things are imagined all over the world, made in every corner of the globe, and sold to people in every nook and cranny.
This economic shift is revolutionizing how trade functions: “Network commerce has consequences that go far beyond just a business model. Its assumptions about how best to optimize the individual good are deeply at odds with how we have come to define and appropriate behavior and the good life in the modern era. Markets are based on mistrust, networks on trust. Markets are based on the pursuit of self-interest, networks on shared interest. Markets are arm’s-length transactions, networks are intimate relationships. Markets are competitive, networks are cooperative.” (European Dream, J. Rifkin). In a network, companies are more accountable because they involve people at a deeper level than just business transactions. Businesses are not only accountable to simply pay their suppliers and deliver to customers, but also to adhere to best practices that affect its holistic environment.
We must all consider our impact on the aggregate network—this will make us better creators, dealers, consumers, and global citizens. If we consider Rifkin’s tenents of the new market—trust, pursuit of shared interest, intimate relationships, a cooperative spirit—we will be well on our way to positive evolution in this market transformation.
Next up: how the new network-based economy simultaneously leads to hyper-globalization and hyper-localization.