The task, then, is to create new things to send down the
slide—in short, to invent items and services faster than they are
commoditized.

This is easier to do in a network-based economy because the
crisscrossing of ideas, the hyperlinking of relationships, the agility
of alliances, and the nimble quickness with which new nodes are created
all support the constant generation of new goods and services.

If goods and services become more valuable as they become
more plentiful, and if they become cheaper as they become valuable, then
the natural extension of this logic says that the most valuable things
of all should be those that are ubiquitous and free.

Ubiquity drives increasing returns in the network economy.
The question becomes, What is the most cost-effective way to achieve
ubiquity? And the answer is: give things away. Make them free.

The natural question is how companies are to survive in a
world of such generosity? Three points will help.

First, think of "free" as a design goal for
pricing. There is a drive toward the free—the asymptotic
free—that, even if not reached, makes the system behave as if it
has been reached. A very cheap rate can have an effect equivalent to
being outright free.

Second, pricing a core product as free positions other
services to be expensive. Thus, Sun gives Java away to help sell
servers, and Netscape hands out consumer browsers to help sell
commercial server software.

Third, and most important, following the free is a way to
rehearse a service’s or a good’s eventual fall to free. You
structure your business as if the thing that you are creating is free in
anticipation of where its price is going. Thus, while Sega game consoles
are not free to consumers, they are sold as loss leaders to accelerate
their journey toward their eventual destiny—to be given away in a
network economy.

But the migration from ad hoc use to commercialization
cannot be rushed. To reach ubiquity you need to pass through
sharing.

Increasingly we see technologies pass through a
protocommercial stage. Huge numbers of people, exerting millions of
hours of collective effort, will jointly craft hundreds of thousands of
creations, but without the exchange of money. An entire society
following the free! Author Lewis Hyde long ago called this arrangement a
gift economy. The central task in a gift economy is to keep the gifts
moving. By social debt, barter, and pure charity, gifts circulate and
generate happiness and wealth.

1 The Law of Connection

Embrace dumb power
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The Network Economy is fed by the deep resonance of two stellar bangs: the collapsing microcosm of chips and the exploding telecosm of connections. These sudden shifts are tearing the old laws of wealth apart and preparing territory for the emerging economy.

2 The Law of Plentitude

More gives more

The fax effect suggests that the more plentiful things become, the more valuable they become. But this notion directly contradicts two of the most fundamental axioms we attribute to the industrial age.

First hoary axiom: Value came from scarcity; diamonds, gold, oil, and college degrees were precious because they were scarce.

Second hoary axiom: When things were made plentiful, they became devalued; carpets no longer indicated status when they could be woven by the thousands on machines.

In the Network Economy, scarcity is overwhelmed by shrinking marginal costs. Where the expense of churning out another copy becomes trivial (and this is happening in more than software), the value of standards and the network booms.

In the Network Economy, more gives more.

3 The Law of Exponential Value

Success is nonlinear

4 The Law of Tipping Points

Significance precedes momentum

5 The Law of Increasing Returns

Make virtuous circles

First, industrial economies of scale increase value linearly, while the prime law increases value exponentially - the difference between a piggy bank and compounded interest.

Second, and more important, industrial economies of scale stem from the herculean efforts of a single organization to outpace the competition by creating value for less. The expertise (and advantage) developed by the leading company is its alone. By contrast, networked increasing returns are created and shared by the entire network. Many agents, users, and competitors together create the network's value. Although the gains of increasing returns may be reaped unequally by one organization over another, the value of the gains resides in the greater web of relationships.

6 The Law of Inverse Pricing

Anticipate the cheap

One curious aspect of the Network Economy would astound a citizen living in 1897: The very best gets cheaper each year. This rule of thumb is so ingrained

in our contemporary lifestyle that we bank on it without marveling at it. But marvel we should, because this paradox is a major engine of the new economy.

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.

8 The Law of the Allegiance

Feed the web first

7 The Law of Generosity

Follow the free

9 The Law of Devolution

Let go at the top

The natural question is how companies are to survive in a world of generosity. Three points will help.

First, think of "free" as a design goal for pricing. There is a drive toward the free

- the asymptotic free - that, even if not reached, makes the system behave as if

it does. A very small flat rate may have

the same effects as flat-out free.

The harsh news is that getting stuck is a certainty in the new economy. Sooner, rather than later, a product will be eclipsed at its prime. While one product is at its peak, another will move the mountain by changing the rules.

There is only one way out. The organism must devolve. In order to go from one high peak to another, it must go downhill first and cross a valley before climbing uphill again. It must reverse itself and become less adapted, less fit, less optimal.

10 The Law of Displacement

The net wins

If money and information flow through something, then it's part of the Network Economy.

In the Network Economy, the net wins. All transactions and objects will tend to obey network
logic.

11 The Law of Churn

Seek sustainable disequilibrium

Ironically, only by promoting churn can long-term stability be achieved.

This notion of constant churn is familiar to ecologists and those who manage large networks. The sustained vitality of

a complex network requires that the net keep provoking itself out of balance. If the system settles into harmony and equilibrium, it will eventually stagnate and die.

Innovation is a disruption; constant innovation is perpetual disruption. This seems to be the goal of a well-made network: to sustain a perpetual disequilibrium. As economists (such as Paul Romer and Brian Arthur) begin to study the Network Economy, they see that it, too, operates by poising itself on the edge of constant chaos. In this chaotic churn is life-giving renewal and growth.

Nonetheless, in the coming churn, the industrial age's titans will fall. In a poetic sense, the prime task of the Network Economy is to destroy - company by company, industry by industry - the industrial economy. While it undoes industry at its peak, it weaves a larger web of new, more agile, more tightly linked organizations between its spaces.

Effective churning will be an art. In any case, promoting stability, defending productivity, and protecting success can only prolong the misery. When in doubt, churn. In the Network Economy, seek sustainable disequilibrium.

12 The Law of Inefficiencies

Don't solve problems

In the end, what does this Network Economy bring us?

Economists once thought that the coming age would bring supreme productivity. But, in a paradox, increasing technology has not led to measurable increases in productivity.

This is because productivity is exactly the wrong thing to care about.

There is only one
time in the history of each planet when its inhabitants first wire up its innumerable parts to make one large Machine. Later that Machine may run faster, but there is only one time when it is born.
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You and I are alive at this moment.
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Getting Rich off Those Who Work for Free