£ccAy

I S THE 1~L~1~

INFORMATION

RE:VQ UTIQNDEAD?If historyis aguide,it is not.AT THE PEAK OF THE INTERNET FRENZY

two yearsago,whentheNasdaqwasover~,ooo anddotcommillionaireswerebuying spreadsin thehills abovePaloAlto, it seemedthat theinforma-tion revolutionwouldgo on forever.Little techcompanieswerepoppingupeverywhere,andsmallinvestorswerereapingreturnsthatmadethemfeellikegeniuses.Thenthe bubbleburst.Itburst,managementguruPeterDrucker

tellsus, because“the informationin-dustryasabusinesswasn’tgoingany-where.”The informationrevolutionhadbeenhyped,exaggerated.NeithercomputersnortheInternet,Druckersays,hadaddedmuchto theeconomy.

Is the informationeconomygoingnowhere?Is its revolutionover?In Sil-iconValley, certainly, theprospectslook bleak.But historysuggeststhatsuchpessimismis misplaced—thatthe

A 1947

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BY W. BRIAN ARTHUR IMARCH 2002 BUSINESS 2.0 65

informationrevolution’sbestdaysmight actuallylie ahead.

Lookedat withouthistoricalCon-

text, theinformationrevolutionap-

pearsto beunique,comparableto

nothingwe knowaboutfrom before.Lookedat aspartofhistoryit is mere-

ly onein aseriesoftechnologicalrevo-

lutionsthathavebeenoccurringsince

themid-x8th century.Eachof these

revolutionshasbeendifferent:The

Industrial Revolution,from about17(O to 1820in Britain, replacedhand-

craftingwith machineryandbrought

thefactoryandmill system.Therail-

wayrevolution,from aboutx8zg to

1875, againin Britain, sawagreatcon-

nectingof commerceandthecoming

ofsteampower.Thesteelandelectric-

ity revolution,fromabout2875to 2920

(theactionnowshiftsto theUnited

StatesandGermany),wasanageof

massiveengineeringandtheelectrifi-

cationoftheeconomy.Thegreatman-

automobilesandcheapgoodsaplenty

And ourownrevolution,whichstart-

edwith themicroprocessorin about

2970,bringsustheageof digital every-

thing, theWeb, andinterconnected

commerce.ThedatesI’ve givenareap-proximate.Economistsquarrelover

whensucherasstartedandended,and

aboutwhichclustersqualifyas“revolu-

tions.” Somedenythat “eras”of great

changeexist at all. Others,notably

economistssuchasCarlotaPerezand

ChrisFreemanof theSussexschoolin

England,championthenotionofrevo-

lutionsandseein theirphasesportents

ofwhatis to come.

All threadsofthoughtontechnology

revolutionsleadbacktoAustrianecon-

omistJosephSchumpeter,asinglefig-

urewriting in thefirst halfof thezoth

centurySchumpeterhasacuriousposi-

tion in economics.Heis reveredonthe

continentofEurope,yethasashadowy

reputationin Anglo-Saxoneconomic

circles—youcangetagraduatedegree

in economicsat anEnglishorAmeri-

canuniversityandscarcelyhearofhim.

He is rememberedmoreby businessgurusfor his ideaof innovationbring-

ing“galesof creativedestruction.”Pro-

fessorswhodo speakofhim arefond of

telling theirclassesthatSchumpeteras-

piredearlyin life to bethegreatest

economistin theworld, thegreatest

horsemanin Austria,andthegreatest

lover in Vienna.The storysmacksof

myth.Butasfar asI cantrackit down,

it is true,andlatein life Schumpeteris

saidto haveonly admittedthathewas

notthegreatesthorsemanin Austria.

soduringhis lifetime—others,hisnemesisJohnMaynardKeynesamong

them,werebetterknown.But I believe

thatSchumpeterwill turnoutto bethe

mostimportanteconomistof thezoth

century.Heconcernedhimselfnotwith aneconomyatrestbutwith the

unfolding ofeconomies,with their on-

goingtendencyto evolveanddevelop

andchangeinstructure.And thisheas-

cribedto innovation—toongoing,dis-

ruptivediscoveriesin technologyand

their incorporationin theeconomy.His writings, somenow nearly100

yearsold, aresurprisinglymodern.

Schumpeternoticedthattechnolo-

gy arrivesinclusters—withelectrifica-

tion comedynamos,generators,trans-

formers,switchgear,powerdistribu-

tion systems;with massproduction

andtheautomobilecomeproduction

lines,modernassemblymethods,“sci-

entific management,”roadsystems,

oil refineries,traffic control.These

clusters,if theyareimportant,define

anera.Theyeventuallychangethe

waybusinessis done,eventhewayso-

ciety is conducted.As Pereztells it, a

technologyrevolutionstartswith the

openingup of oneor moretechnolo-

giesthat“enable” thenewcluster.The

newtechnologycluster,at first little

noticed,achievessuccessesin early

demonstrations,andtechnicalpeople

startsmallcompaniesbasedon the

newideas.Thesecompeteintenselyin

this earlyturbulentphase.Govern-

mentregulationis largelyabsent,and

assuccessesmount in atechnicalfree-

for-all, thepromiseof extraordinary

profit l100ms.The public startsto

speculate.(In themass-production

revolution,think of the19205 in the

UnitedStates.)Themiddle phasesees

asustainedbuildout orgoldenageof

the technologyduringwhich it be-

comestheengineof growthfor the

economy.Largecompaniesandoh-

gopoliesreign,andtheperiodis oneof

confidenceandprosperity(Thinkof

the1950S and‘6os.) In thelastphase,

thetechnologyis mature.It hassatu-

ratedits possibilities,production

movesto placeson theperiphery,and

complacencysetsin. (Think of the

1970S andtheriseof competitioninJapanandTaiwan.)Profitsathomeare

low, andentrepreneursbeginto look

aroundfor newopportunities.The

economybecomesripefor thenext

revolution.

Theexactphasesandwhathappens

within themaredebatable.But whatinterestsmeis thepatternofspecula-

tiveexuberance,followedbycrash,fol-

lowed by astrongbuildout period.If

ufacturingage,from 1910 to 1970 or Washethegreatesteconomistin the

so,broughtus massproductionand world?Hewascertainlynotconsidered

IN THE FIRST STAGE OF A TECHNOLOGY REVOLUTION,

A PERIOD OF SPECULATION IS FOLLOWED BY A

CRASH. THEN COMESA STRONG BUILDOUT PERIOD—

THE GOLDEN AGE OF THE TECHNOLOGY.

66 BUSINESS 2.0 MARCH 2002

& EssexRailroadpromisedthat“the

first necessariesof life will besupplied

in greaterabundance;competitionin-

creased,andareductionin pricesthe

necessaryconsequence.”Railwaysbe-

camefashionable.QueenVictoria

madeherfirst railwaytrip in 2842 in a

suitablyimperialcarriageandallowed

thatshewas“quitecharmedby it.” En-

trepreneursbeganto emerge,among

themGeorgeHudson,the “railway

king.” Hudsonstartedasadraperin

York, inheritedmoney,andfoundhe

.‘~ ‘S

theSchumpeter-Perez-Freemanstory

holdswater,we arenot attheendoftheinformationrevolution.We are

only partwayinto it, andthebuild-

out—thegoldenage—hasyetto come.

F WE LAY THE INFORMA-[~~ tion revolutionalongside

thegreatrailwayrevolu-[~H tion in Britain, yearforyear,we’d now besome-

wherearoundx8go—justaftertherail-

wayinvestmentmaniaof 1845 anditscrashin 1847. Therailwayrevolution

tookplaceroughlybetween2825 and

2875.I sayroughly,becausetherenever

is amarkedbeginningor endto an

economicrevolution.Evenin 1825,

railwayswere by no meansnew. For

centuries,mineshadusedhorse-

drawnwagonsto moveoreson wood

oriron-cappedrails.Thefirst com-

mercialrailway, theStockton& Dar-

lington, ownedasinglelocomotive

whenit openedin 2825,andits Express

wasstill acarriagedrawnon rails by a

canteringhorse.EvenwhentheLiver-pooh& ManchesterRailwaywasbeing

plannedin 1829,its directorsdoubted

thatamovinglocomotivecouldretain

adhesionon uphill gradients.Thecon-

ventionalviewbetoncarriageshauled

by ropesattachedto stationarywind-

lagengines.In October1829,theL&IvI

organizedalocomotivetrial atRainhill,

stipulating that theenginemustbe~capableof“drawingatrain ofcarriages

at io mph.” Five locomotivesentered,andRobertStephenson’sRocketas-

tonishedthewatchinggentlemenbyachieving24mphunloadedand22mph

haulingatrainup theRainhill incline.

Locomotiveshadprovedthemselves.

Technicalpioneersbeganto crowdin, a

host of improvementsfollowed, and

adecadeandahalfof frenziedtechni-

calcompetitionwasunderway.

Thenewtechnologyengendered

talkof anew,moreprosperousecono-

my.An 1831prospectusfor theLondon

Britain’srail boom,fromtop:Rocket,anearlylo-

comotive,in 1829; railwaystockcertificate,

1823;QzjeenVictoria in herroyaltrain cai 1875.

MARCH 2002 BUSINESS 2.0 67

good ... andall wassmiling,” Francis

wrote. “The mostcautiouswerede-

ceivedby this apparentprosperity...

Like drunkenmentheylost theircau-tion andgavetheirsignaturesto every-

thingthatwasoffered....Manyof the

railwaysattainedpriceswhich stag-

geredreasonablemen.Themore

worthlessthe article, thegreater

seemedthe struggleto attain it.”

Schemesfor directlines connectinglit-

tle-knowntownsto otherlittle-knowntownsbecameacraze,launchedmore

with aneyeto garneringinvestment

thanactualprofits. “Thecountry,”said

Lord Cockburn,aScottishjudge,“is an

asylumofrailwaylunatics.”Not all

schemescould beprofitable.“We seenine ortenproposalsfor nearlythe

AFTER A CRASH MUCH OF THE GLAMOUR OF THE

NEW TECHNOLOGY IS LOST. THE MOOD

IS DIFFERENT. INVESTMENT PROFITS BEGIN

TO REFLECT REAL RETURNS.

- - nificent 100-acreNewbyParkestatefrom EarldeGreyin 2845.

Hudsonwasoneof manyrailwayen-

trepreneurs.Theprocedureinpropos-ingarailwayrequiredbringingabill be-

fore Parliament;if it wasapproved,thestockcouldbesubscribedin asortofVictorian IPO.Gentlemenandpoliti-ciansanddignitariessuchastheDuke

of Wellingtonboughtstock.Those

whocouldnot afford stockcouldbuy

scrip—sharesdicedandparceledintosmallunitsthatcouldbesold on the

street.Servantsandspinstersandtradesmenbegantopourtheirsavings

into railwayscrip.By 2845 afull railwaymaniawasrag-

ing.By thesummernewschemeswere

beingfloatedatthe rateofmorethanadozenaweek.Scripwassoldby alleymen,andthestockexchangeresem-

bleda countryfair. Thegeneralpros-peritycontributed.“Themarketswere

sameline, all at a pre-

mium, whenit is wellknown thatonlyone

CAN succeed,”saidthe

Economist.Theresult,predictably,wasoverca-

staveoff nationaleconomiccollapse.

Whenthe panicwasover, railwayshareshadlost 85 percentof theirpeak

valueandseveralhundredcompanieshadfolded.AsFrancisrecordedit,“En-

tire familieswereruined.Therewas

scarcelyanimportanttownin England

butwhat beheldsomewretchedsui-

cide.” Hudsonhimselfwasnevercon-victedof wrongdoing.(“He wasobvi-

ouslyno adeptat thehigherartsof

swindling,” Schumpeterremarked.)But hewasnow apariahandfled to

Paris.ThomasCarlylewrotein i8~oof

imaginingHudsonswingingon agib-

bet“as atragicpendulum... veritably

theSupremeScoundrelof theCom-monwealth,whoinhisinsatiablegreed

andbottomlessatrocityhad... ledmul-

titudestogo, in thewaysof

gildedhumanbaseness;

seekingtemporaryprofit

whereonly eternallosswaspossible.”Manyof

Hudson’sinvestorscher-

ishedasimilarhope.Fifty yearsearliera

similar storyhadplayed

out in thecanalmaniaofthe1790s.Canalshadbeen

aroundfor acoupleof

hundredyears,butgot

underwayseriouslyinBritain in 1761whenthe

Dukeof Bridgewaterdrove acanal

from his coalminesatWorsleyto thetextile mills at Runcorn.In the two

decadesthat followed, largeprofits

from this andsimilar undertakings

broughtabouttheswift expansionofcanalsystems—andaspeculative

maniain 1792. Canalsharescrashedin‘793, totheruinofmany.

Whatis interestingaboutboththecanalandrailwayrevolutionsis thattheircrasheswereby nomeanstheend.In thedecadesafter1793, Britain wenton to build outz,ooomilesofwater-way,doublingitsprecrashmileage.Andcanalsbecamethekeyinfrastructure

TheRailwayKin&GeorgeHudcon(1800-1871)

pacityiTherewerethree

independentroutesfrom LondontoPeterborough,andthreefrom Liver-

poolto Leeds.

1]~oublebeganinOctober2845,whenscrip ceasedto payapremiumand

sharesinestablishedrailwaysbegantofall. GreatWesternRailwayshares had

plummeted40 percentfrom theirAn-

gustpeak.A harvestfailure in 2846

compoundedthedownswing,further

bankruptciesfollowed, andaneco-nomicWeekofTerrorbeganonMon-day,Oct. 17, 1847.Somebankswereforcedtoclose.TheBankof Englandheld lessthan£2 million in reserves,

andspecialmeasureshadto betakento

hadatalentfor puttingtogethernew

andbranchlines.He becameapublic

figure, fawnedover, known asHis

SteamMajestyA contemporaryob-

server,JohnFrancis,recordedthat“his

fortunewascomputedwith analmost

personalpride....Thechoicestaristoc-

racy ... soughthis presence....Thebishopbentin homage....Whenhis

namegracedanadvertisement,men

ranto buytheshares.Hewastheirrail-

waypotentate;their ironking; their

goldengod.”Therailwaykingssuchas

Hudsonwerenot somuchtechnical

peopleasorganizersandinvestors—

mainlyof otherpeople’smoney.Andindeedtheyorganizedandinvested.

And got rich.Theyboughtlargees-

tates—Hudsonpurchasedthemag-

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componentof theIndustrialRevolu-tion. Similarly, in 1845, justbeforethe

crash,Britain possessed2,148milesof

railway;6~yearslaterit had2I,00o

miles.Themajorbuildoutof railwayscameafter thecrashof2847.

Ofcourse,afteracrashmuchoftheglamourof thenewtechnologyis lostandis noteasilyreplaced.Thenewpe-nodis different.Themoodis differ-ent.If theperiodbefore1847~ atimeofexcitementandof smallcompanies

jostling for dominance,theyearsafter

1847areonesof seriousnessandhard

work—yearsof buildout ratherthan

novelty,yearsof confidenceandsteadygrowth,yearsof orderliness.Investmentprofitsbegintoreflect the

realreturnsfrom thenewtechnology

Thebasetechnologyis now inplace,

but beforethe crashit hadnotac-countedformuchin economicterms.In the decadesfollowing the 1847

crash,the railwayscomeinto their

own.Passengerandfreight receipts

becomemultiplesof whattheywerebefore,andtheverygrowthoftherail-wayshelpsthe economyto grow,which furtherstimulatestherailways.After 2850,railwaysbecometheen-

gineof theeconomyinBritain.In theUnitedStates,therewasno

equivalentoftheBritish railwaymania.

Certainlytherewereperiodsofset-backinwhichrailroadoverinvestmentwaspartlyto blame.In thedepressionof 1859, theeconomiccommentatorHenryCareyBaird complainedthat

“our railroad systemhascostmorethan$x,ooo,oooandhasbroughtruin

uponnearlyeveryoneconnectedwith

it, thenationincluded.”But, again,atthistime railroadsin theUnitedStates

werejust beginning.In 2860 theUnit-

edStateshad3o,00omilesofbuilt-out

track; by 1914 it had253,000miles.

Thebuildout,whenit came,wasmas-sive.And it broughtanageof oligopo-liesandrailroadbarons.Yet inspiteofsuchexcesses,railroadsbecamethe

driving forceoftheUS. economy.Rail-roadsopenedup theWest,theypro-videddemandandthusthebaseforthenewsteelindustrytheymadepos-siblenewcommerceandothernewin-dustries,theybroughtnewcities andcentersof populationinto existence,

STEAM ENGINE.

M8

W4TT3~ENGIYE.

F~.1.

Sz~gle’aamgENGINEfor pwnp~j,zt

CHELSEAWATER WORES.

.1~L4rSIT!

8

Progresstakestime.JamesWattinventedhisnewsteamenginein the176os;steampowerdidn’tcomeinto wide useuntilthe182Os.

MARCH 2002 BUSINESS 2.0 69

andasin Britain thecommerceof the

countryorganizeditself aroundthem.

Not all technologyrevolutionsof

thepastexhibit maniasandcrashes.Economistsdisputeto whatdegree

thegreatcrashof X929wastheresult

ofoverexuberanceaboutthestocksof

thenewautomobilemanufacturersandothermassproducers.And there

wasno steelcrashin the189os.But

this dog-that-didn’t-barkclue— the

absenceof asteelcrashanddubious-

nessof a mass-productioncrash—

doesn’tnegateanycorrelationbe-

tween the railway crashandthe

Internetcrash.It points to aresem-

blance that might otherwisebe

missed.Railwaysandcanals,like the

Internet,areconnectiontechnologies.

Theyconnectplaces,theyconnect

businesses.As suchtheyarenatural

monopolies—onlyoneline, or one

canal,canprofitablyconnectLiver-

pool to Manchester,andoncethis isputin place,competinglines lose.For

- connectiontechnologies,this brings

ona“race for space.”And this in turn

means thatwhentheopportunities

openup, theyopennotwith anorder-

ly fundingbutwith aheatedsensethat

theyarefinite andwill soonbefilled.

Theresultcaneasilybeaninvestment

frenzy—amania.By contrast,steelfac-

toriescanconstantlyimproveandan-

dercutoneanother,sothat asthe tech-nologyimprovesin an orderlyway, it

becomesfinancedin anorderlyway.

Nomania.But withorwithoutmanias,

all revolutionsstill progressfromearly

chaoticinnovationto buildout,and

thento tiredovercapacityandforeign

competition.

L_0 — ogy cluster—micro-

T HECURRENT TECHNOL-

r-~ ~ processors,telecom-

[~‘ H munications,software,theInternet—hashad

its boomandcrash.And aswith therailways,thetelecommunicationssideof it suffersfrom overcapacityIt has

madepossibleahostof subtechnol-

ogiesanddigitally basedactivities—

genomics,CTscanners,DNA.probes,

global positioning systems,cell

phones—andnobodydoubtsthatit

will spawnothers.But the Internet

partof this revolutionseemsto bein

troubleandits prospectsarederided.

Is itsbuildout yetto come?Certainly

we canmatchtheInternetwith what

happenedin the184os: theinitial suc-

A REVOLUTION DOESN’T TRULY ARRIVE UNTIL

WE STRUCTURE OUR ACTIVITIES AROUND THE

NEW TECHNOLOGY—AND THE TECHNOLOGY

cesses,theballyhoo,the IPO kings,thelargeestates.And thecrash.But

aneerieresemblanceto eventsof 260

yearsagodoesn’tguaranteethattheinformationrevolutionis aboutto

enteranygoldenage.Whatevidenceis therefor this?

OneargumentI don’t buy is thepro-posalthat theinformationrevolutionhasbeenaroundlong enoughto have

hadits chance.Its enablingtechnol-ogies—thelaser,themicrochip,the

Arpanet(forerunnerof theInter-net)—datefromthe1950sto theearly

197os.Sotherevolution,thisargument

goes,hashad3, yearstoproveitself

andwe haveyetto seeits economic

gains.Hereagain,historytellsus oth-erwise.It tells usthataconsiderable

delay—severaldecades,usually—lies

betweenthetechnologiesthatsetarevolutionin motionandtherevolu-

tion’s heyday.Theenablingtechnolo-

giesofthesteelandelectricityrevolu-

tion (theBessemersteelplantandtheelectricmotorandgenerator)hadar-rived bythe187os,buttheir full effects

werenot felt until well into the1910S.

Watt’ssteamenginewasdevelopedin

the176os;steampowerdidnot come

into prevalentuseuntil the1820s.

Modernmassproductionarrivedin

1913,but didnot reachits peakuntil

the1950Sand‘6os.Suchdecades-long

delayedreactionsshouldgiveus aclue

thatsomethingotherthantheappear-

ADAPTS TO USBY BECOMING EASY TO USE.

TheIslington TunneiRegencyCanalin 1827.Afterthecanalbubbleburstin 1793,Britain wenton to

buildout2,000milesofwaterway,doublingitscanalmileage.

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70 BUSINESS 2.0 MARCH 2002

anceof a technologyandits subse-

quentadoptionis atwork. If apower-

ftil newtechnologyappears,it might

takepeopleadecadeto hearaboutit

andtry it. But threedecades?Five

decades?Somethingelsebesidesslow-

nessto glom onto thenewtechnology

• mustbegoingon.

That somethingelse,I believe,is

that manyarrangements,manyim-

provements,andmanyorganizational

Changesneedto beput in placebefore

thenewtechnologyclustercanbe-

comewidespread.It is not enough

thatthebasetechnologiesofarevolu-

tion becomeavailable.‘Whetherthese

arerailroadsor microchips,arevolu-

tion doesn’tfully arriveuntil westruc-

tureouractivities—ourorganizations

andbusinessmethods—aroundits

technologies,anduntil thesetech-

nologiesadaptthemselvesto asby be-

coming comfortableandeasyto use.

So it’s not merelythat thebasetech-

nologieshaveto becomebetter,faster,

cheaper.Thathelps,butwhat’sneed-

edfor therevolutionto fully blossom

are the 1,001 subtechnologies,ar-

rangements,andarchitecturesthat

adaptus to thenewtechnologiesand

themto us.Their arrival takestime,

andit definesthebuildout periodas

onethatcreatesthearrangementsand

subtechnologiesthat bringthenew

possibilitiesinto full use.

We canseethiswith railwaysafter

thecrashof 1847.Not only did rail

transportbecomebetter,faster,cheap-

er—withimprovementssuchassteel

railsarrivingin thex86osand,adecade

later,compoundlocomotivesthat in-

creasedpowerby expandingsteamin

onecylinderafteranother.But systems

thatmaderailwaysusableandsafe—

whatI will call arrangements-of-use—

S also followedin this period:leversys-

temsthatworkedswitchesandsignals,

controlof traffic via theelectrictele-

graph,air brakes,doubletracks,Pull-

mansleepingcars,dining cars,toilets.

(Toilets arrivedlateron British trains thereforeoftenrequiredfactoriestobe

redesigned.Industrialarchitectsknew

nothingof electricityandfinding the

properlayoutandorganizationtook

muchexperimentation.Full adoption

took40 years.We arein asimilarposition today

with computationandthe Internet.

Businessesroutinelyinstall digitally

thanonAmericanonesdueto acertain

Englishindispositionto admitbodily

functions in public.) In thebuildout

period,innovationcontinuesadapting

thenewtechnologyto humanuse

without,letup.And businessin turn

adaptsitself to therailway. Factories

thatmightformerlyhavebeenlocated

nearrivers arenow for

conveniencelocatednear

railways.Productionfa-

cilities andshipping

methodsareadaptedtothenewtransportation.

In fact,with anyim-

portantrevolution,busi-

nessorganizationneeds

to domorethanadapt.It

needs,to someconsider-

abledegree,to redefine

itself— to re-architectit-

self. In 2955,economist

Marvin Frankelnoted AndyGrove,RobertNoyce,andGordonMoore—

that England’sLanca- themainmindsofIntel—in1975.

shiretextile mills stillusedold, out-of-datemachinery.Yet

themill ownerswereawareof thead-

vantagesof modernmethodsandma-

chineryWhydidn’t theyadoptthem?

Frankelfoundthatthenew,moreeffi-

cientmachineswereheavierandlarger,

andtheold ‘Victorianbrick mill build-

ings with their closesupporting

columnscouldnot physicallyaccom-

modatethemorbeartheirweight.The

newtechnologyrequiredtearingdown

theold structuresandbuilding differ-

entones.Thecostsof thiswereprohib-itive. EconomichistorianPaulDavid

tells asimilarstory abouttheslow

adoptionof theelectricmotor.Before

electrification,everyfactorywaspow-

eredby asinglesteamengine,agiant

hissingandcrankingcontraptionwith

pistonsandaflywheel andasystemof

beltsandpulleys thatturnedshaftson

severalfloorsof abuildingto powerall

ofthefactory’smachineryElectricmo-

torspoweredmachinesseparately,and

basedequipmentor enterprisesoft-

wareorpeer-to-peercommunications.

But for effectiveuse,theyneedto re-

structuretheir activities— theirvery

organization.Howto dothis, exactly,is

notyetknown.Businessesdon’t know

whattheappropriateorganizationwill

look like, andtheyfacethepossibility

thatanyreorganizationmaywell be

quickly outdatedby newtechnologies.

Evenif thecorrectorganizationwere

known,businesseswould still haveto

paytheMarvinFrankelcostsoftearing

downtheold structures.Muchof the

technologyis available,but its usere-

quiresaslowprocessoflearningandin-

vestment.In fact thereis strongevi-

dencethatjustsuchaprocessoftearing

down old structuresandsteadily

adoptinginformationtechnologywas

underwayin mostUS. industriesall -

throughthe19905 andthatit statisti-

callyaccountedfor virtually all of the

considerableproductivitygainsofthat

MARCH 2002 BUSINES5 2.0 71

decade. Two recent studies show that

this processcontinues— thateven

aftertherecentcrash,productivity

gainsissuingfromthenewtechnologyhavebarelyslackened.Thereasonissimple:Crashor not, informationtechnologypricesfall constantly,and

businessestakeadvantageof this topurchase‘the newtechnologyand

adapttheirmethodsto it.

Thisishealthy.But it is not sufficient

thatbusinessesandpeopleadaptto anewclusterof technology.Thereal

gainscomewhenthenewtechnologyadaptsto them.Thenotionthata tech-

nologyneedsto adaptto itsusersseemsobviousenough,but isheavilyunderestimated.Peoplewill not usea

technologythatdoesn’tworkproperly.Theywill shunanythingawkwardoruntrustworthyor justplaindifficult to

use.Making the technologybetter,faster,cheaperis only partof what’sneeded.Anewtechnologyisusedwhenit is moreconvenient,easier,reliable.

Forwidespreaduse,atechnologymust

provide,inaword,amenity

- - As technologistJohnSeelyBrownpointsout,somethingsubtlehappensto a technologywhen it achieves

amenity:It disappears.Webecomeab-

sorbedintoits world, andits bonesdon’tstickoutanymore.Thus,ifwearedriving acaratnight,we areabsorbed

into car-world—weareawarewe are

driving, awareof thepassingtreesandfences,butnotawareof thecarasatechnologyThecardisappears.By this

standardthe Internetissomewherearoundtheget-out-and-get-underdays

of theModel T Ford.To accessmy

THE DIFFERENCE WITH THIS REVOLUTION IS

THAT IT WON’T END WHEN WE HAVE BLANKETED

THE COUNTRY WITH FIBER. WE CAN EXPECT

MORE INNOVATION IN THIS BUILDOUT PHASE.

bankaccount,I haveto fire upmycom-

puter,andwait.Thendial in bymodem,

andwait.Thengetabrowsergoing,and

wait. Thenenteraccountnumbersand

velopment—toreachamenityNeededwerepavedroads,reliablebrakes,igni-

tionsystems,safetires,andathousand

otherthings.

Theinformationrevolutionis noti~adicallydifferentfrompreviousrevo-

lutions.TheInternethashaditsboom

andcrash,andthereis no reasontosup-posethathistorywill benegated:Full

useof thetechnologywill arriveeven-

tually.It alwayshas.But thiswill require

that thetechnologybecomeworkablefor theuser,andthatbusinessesre-architectthemselvesto makeuseofit.

Thiswill happengraduallyduring thenext20 to 20 yearsas,themissingcom-

ponentsof thetechnology’susestruc-tureareput inplace.In thisbuildout,thetechnologiesthatwill mattermost,thatwill determinethepace,arethe

onesI amcallingarrangements-of-use.

Ifthereisonedifferencewiththis revo-

lution, however,it is thatit won’t end

whenwe haveblanketedthecountry

with optical cableor haveteraflop

processors.Informationtechnology

morphseveryio yearsor so,so that

whatwe thoughtdefinedthe

information revolution—

batchprocessing,desktop

computing,Web-basedinter-

connection— is continually

supercededby something

new.What lies aheadcan

neverbefully foreseen.This

meansthatwe canexpect

more innovationin this build-

outphasethanwith previous

revolutions.But duringthe

next fewyears,atleast,what

will drive the buildout is

somethingatoncesilentand

unremarkable:thequiet,in-exorableinterconnectionof businessandtheslowappearanceofWeb-based

servicesthatdigitizationprovides.

How fastcanthe informationtech-nologyeconomycomeback?I don’tknow.Theeconomyis, quietnow,ges-tatinganewphase.WhatI do knowis

thatwhenthatnewphasecomesforth,

it will beagiant.+

FurtherReading• CarlotaPerez,TechnologicalRevolu-

tionsandFinancialCapital, Edward

ElgarPublishing,Cheltenhain,U.K.,

forthcoming2002.

• ChrisFreemanandFranciscoLouça,

AsTimeGoesBy,FromtheIndustrial

Revolutionsto theInformationRevolu-

tion, OxfordUniversityPress,2002.

WBrianArthurisCitibankProfessoratthe

SantaFeInstitute.His websiteis www.

santafe.edWarthui

passwords,andwait. All the

time thereexistsabarelyno-

ticeableanxiousnessthatthe

processmayhangup at any

moment.TheWeb’s interface

remainsuncomfortableto

use:ill-fitted, unreliable,frus-trating,slow,andlackingcon-tentwhenwegetthere.It has

notdisappeared,nor hasit

achievedamenityIt will take

timefor amenitytechnolo-

giesto becomeavailableand

used.It tookautomobilesfrom about1890 to the

194os—halfacenturyof de-

Two recent studiesThe economic effects oftechnology and produc-tivity are explored inthese reportr ProjectingProductivityGrowth:LessonsFrom theU.S.GrowthResurgence,byDale W.Jorgenson, MunS. Ho, and Kevin J. Stiroh(www.frbatlanta.org/frbatlanta/fiIelegacydoc~stiroh.pdD; and TechnicalChange in the U.S. (1947-2000): Measurementand MacroeconomicConsequences, by JasonG. Cummins and GiovanniL Viofante (wwwucl.ac.u~-uctpgvbtumvioI.pdf).

fJ~1U1(~fUThecb:~thatignitedthePC

revoludon.~theIntel8o86.

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0

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72 BUSINESS 2.0 MARCH 2002