Victus Spiritus


Adaption to the Shifting Economy

16 Jan 2010

There are broad classes of business frameworks that fit differently within the growing network economy. All are subject to the forces of change, and require leadership capable of adapting to the new rules. Make no mistake, any businesses which seeks to prosper will need to comprehend the nature of the network economy.

The Gleaming Tower of the Vertical Market Is a Beacon of Light

The first branch is usually referred to as vertical or niche marketing. Vertical markets are characterized by similar businesses or customers.

The activities of participants within any given vertical market are typically similar in that they aim at solving the same or similar problems.

Service and quality are of primary importance to businesses which serve a niche. Positive differentiation is what fuels customer retention and business growth. But how can redundant services coexist in an economy that is so well connected?

Redundancy is not only tolerated but required in our nervous system economy. A myriad of parallel paths provide the same information, but by varied routes. This feature is required by resilient systems, and is intrinsic to any lasting economy. The network exists in a continual state of flux and must be capable of enduring substantial change. Some pathways fail while new routes are formed, an inherent characteristic of any dynamic network.
Niche domination is susceptible to rapid obsolescence. Vertical organizations must reconcile the differences between static expertise, and skill groups which are able to redeploy to adjacent opportunities. The good news is that in a network economy, new verticals are created as quickly as they vanish.

The Horizontal Web Weaves Through Many Businesses

For the broad reaching nature of
horizontal markets one might expect only a single optimal utility for a tight network. And for the infrastructure of the nervous system economy there are dominant standards for communication (ie protocols for the Net). But even in the relenetless competition for the best utility, the shifting nature of the network infrastructure is as susceptible to obsolescence as the niches. New standards that better serve the current state of the network economy, will naturally dominate. Displaced horizontals can provide value long after they lose dominance, creating a many layered network.

The General Store as a Horizontal Case Study

Let's look to the creative destruction of low cost goods suppliers as an example. In my lifetime I have witnessed many business frameworks try to capture the wide market demand for the "general store". Just to name a few: TwoGuys, Caldors, Woolworth, Kmart, Target and Walmart. Walmart has had recent success due to their mastery of logistics and ability to set the prices they will buy goods at.

Amazon has arisen as a great competitor to low cost general stores. From the comfort of home, we can shop for a huge variety of goods and have them shipped to us. Even within the massive market Amazon has mastered, there are thousands of other micro stores, and hundreds of thousands of affiliates. Amazon has created an entire ecosystem to build revenue and provide service to.

But even Amazon is subject to market disruption by competition. For in a network economy nodes can interract directly, forever pushing large middle organizations to become more efficient. Ebay has tried to minimize the cost of matching sellers and buyers, but Craigslist has apparently mastered the art. Each of these network economy business structures provide varied levels of guarantee between buyer and seller. Their success serves as evidence that there is space in the shifting economy for parallel horizontal markets.