Twelve Principles of the Network Economy
(Kelly)

Knowledge Center

• About
• Home
• Dictionary
• Encyclopedia
• Question?
• Views

• Register
• Log in
• Help

• Change & Organization
• Communication & Skills
• Decision-making & Valuation
• Ethics & Responsibility
• Finance & Investing
• HRM
• Knowledge & Intangibles
• Leadership
• Marketing
• Program & Project
• Strategy
• Supply Chain & Quality

New rules for the internet period. Explanation of Twelve Principles of the Network Economy of Kevin Kelly. (Wired, '97)

The Wired article of Kevin Kelly

In a superb and revolutionary article in Wired (5th September, 1997) Kevin Kelly described the Twelve Principles of the Network Economy. According to Kelly, the emerging new economy represents a tectonic upheaval in our commonwealth, a social shift that rearranges our lives. More than mere hardware or software ever can. It has its own distinct opportunities and its own new rules. People playing by the new rules will prosper; people ignoring them will not.

Four Axes of the new rules

Kelly argues the new rules governing the global restructuring revolve around 4 axes:

1. Wealth in this new regime flows directly from innovation, not optimization; that is, wealth is not gained by perfecting what is known. But by imperfectly seizing what is unknown.
2. The ideal environment for cultivating the unknown is to nurture the supreme agility and nimbleness of networks.
3. The domestication of the unknown inevitably means abandoning the highly successful known - undoing what was perfected.
4. In the thickening web of the Network Economy, the cycle of "find, nurture, destroy" happens faster and more intensely than ever before.

Twelve Principles of the Network Economy

The following 12 principles of the Network Economy were supposed to provide new rules for the internet period:

1. The Law of Connection. Embrace the dumb power: Of the collapsing microcosm of chips and the exploding telecosm of connections.
2. The Law of Plentitude. More gives more: Mathematicians have proven that the sum of a network increases as the square of the number of members. In other words, as the number of nodes in a network increases arithmetically, the value of the network increases exponentially.
3. The Law of Exponential Value. Success is nonlinear: During its first 10 years, Microsoft's profits were negligible. Its profits rose above the background noise only around 1985. But once they began to rise, they exploded.
4. The Law of Tipping Points. Significance precedes momentum: In epidemiology, the point at which a disease has infected enough hosts that the infection moves from local illness to raging epidemic can be thought of as the tipping point. The contagion's momentum has tipped from pushing uphill against all odds to rolling downhill with all odds behind it. In biology, the tipping points of fatal diseases are fairly high, but in technology, they seem to trigger at much lower percentages of victims or members.
5. The Law of Increasing Returns. Make virtuous circles: Value explodes with membership, and the value explosion sucks in more members, compounding the result. An old saying puts it more succinctly: Them that's got shall get.
6. The Law of Inverse Pricing. Anticipate the cheap: Through most of the industrial age, consumers experienced slight improvements in quality for slight increases in price. But the arrival of the microprocessor flipped the price equation. In the information age, consumers quickly came to count on drastically superior quality for less price over time. The price and quality curves diverge so dramatically that it sometimes seems as if the better something is, the cheaper it will cost.
7. The Law of Generosity. Follow the free: Now, giving away the shop for free is an applauded, level-headed strategy that banks on the network's new rules. Because compounding network knowledge inverts prices, the marginal cost of an additional copy (intangible or tangible) is near zero. Because value increases in proportion to abundance, a flood of copies increases the value of all the copies. Because the more value the copies accrue, the more desirable they become, the spread of the product becomes self-fulfilling. Once the product's worth and indispensability is established, the company sells auxiliary services or upgrades, enabling it to continue its generosity and maintaining this marvelous circle.
8. The Law of the Allegiance. Feed the web first: The distinguishing characteristic of networks is that they have no clear center and no clear outer boundaries. The vital distinction between the self (us) and the nonself (them) - once exemplified by the allegiance of the industrial-era organization man - becomes less meaningful in a Network Economy. The only "inside" now is whether you are on the network or off. Compare: Organization Chart.
9. The Law of Devolution. Let go at the top: The biological nature of this period means that the sudden disintegration of established domains will be as certain as the sudden appearance of the new. In the Network Economy, the ability to relinquish a product or occupation or industry at its peak will be priceless.
10. The Law of Displacement. The net wins: The question "How big will online commerce be?" will have diminishing relevance, because all commerce is jumping onto the Internet.
11. The Law of "Churn". Seek sustainable disequilibrium: The Network Economy moves from change to "Churn". Change, even in its toxic form, is rapid difference. "Churn", on the other hand, is more like the Hindu god Shiva, a creative force of destruction and genesis. "Churn" topples the incumbent and creates a platform that is ideal for more innovation and birth. It is "compounded rebirth." And this genesis hovers on the edge of chaos.
12. The Law of Inefficiencies. Don't solve problems: In the Network Economy, productivity is not our bottleneck. Our ability to solve our social and economic problems will be limited primarily by our lack of imagination in seizing opportunities, rather than trying to optimize solutions. In the words of Peter Drucker, as echoed recently by George Gilder, "Don't solve problems, seek opportunities."

Principles of the Network Economy Special Interest Group Special Interest Group (154 members)

Principles of the Network Economy Forum   Recent topics   The Impact of the Internet Since we are approaching the end of year, I was thinking back to the end of the 20th century. The year was 1999 and at the time I worked as an Interne...           Network Economy: New Rules or New Tools? The 12 rules of Kelly on the network economy are certainly impressive. But we shouldn't speak about new rules, fundamentally altering the ...           Interacting with Other People Via the Internet. Impact on Business Actually, the web is a great tool and does change a lot of commercial rules we built in past hundred years. Now, whether you are a big company or a sm...           Some More Implications of 'e- Network': FAIR approach Spotlighting some more implications, we can rightly say, that “e- network” enables the FAIR approach among all its network associates, where F stands ...           From Customer Centricity to an Everyone-to-Everyone Economy (E2E) We now live for some time in a world with rapidly developing technologies, high interconnectedness and with easy access to information. Aiming to bene...           Long Tail Theory - Anderson In his 2006 book: "Investing in the Long Tail: Why the future of Business is Selling Less of More", Chris Anderson - Editor of Wired Magazine - presen...

Best Practices - Principles of the Network Economy

Expert Tips - Principles of the Network Economy   Key Challenges of Internet Age for Management and for Product and Service Development       Influence of Internet       What are Smart Creatives? Traits       Meta-cognition (Meta-thinking) in Thinking About the Future       Full Text of New Rules For The New Economy       Six Steps for Integrating Social Media Into your Organization       Enterprise 2.0: Integration of Internal and Public Social Media in the Organization       Strategic Options for Dot-coms and Established Firms       The Importance of Customer Differences in Markets with Network Effects: the Limits of Scale

Resources - Principles of the Network Economy Your Organization Needs to Change its Strategy Implementation Method   Winner Take All: Competition, Strategy, amd the Structure of Returns in the Internet Economy   Ethical Issues of IT, Information Systems and the Internet   Customer Behavior on the Internet   Introduction to E-Marketing | Internet Marketing   Social Media for Organizations   Communication Types: Mass, Interactive, Internet   Introduction to Network Organizations   Integration of Social Media in Business   The Internet / Social Media Revolution   Social Media for Business   Social Networks and Ethical Issues   A Methodology to Build Systems in Dynamic, Complex Innovation Environments     News about Principles Kelly         News about Network Economy Kelly         Videos about Principles Kelly         Videos about Network Economy Kelly         Presentations about Principles Kelly         Presentations about Network Economy Kelly         Books about Principles Kelly         Books about Network Economy Kelly         More about Principles Kelly         More about Network Economy Kelly

Compare with Twelve Principles of the Network Economy: Disruptive Innovation  |  Impact/Value framework  |  Strategic Thrusts  |  Bricks and Clicks  |  Multi Channel Marketing  |  Affiliate Marketing  |  4S Web Marketing Mix  |  Competitive Advantage  |  Strategic Alignment  |  Resource-Based View  |  Delta Model  |  Rule of Three  |  Strategic Types

Return to Management Hub: Change & Organization  |  Communication & Skills  |  Decision-making & Valuation  |   Finance & Investing  |   Knowledge & Intangibles  |  Leadership  |  Marketing  |  Strategy  |  Supply Chain & Quality

More Management Methods, Models and Theory