Networks, products and their relativity*

An economics of codependence has taken root in technology, accelerated by the newly dominant digital environment. The following summarizes some of the featured aspects, leading to a concluding comment by way of footnote.

Thesis

In the new economy there are two component parts that relate to one another to define and shape each other’s respective form:

  • Networks (including platforms, marketplaces, exchanges, and other interconnectivities): Dynamic and more akin to biological ecosystems. Networks grow and resist disruption, aided by network effects that are now becoming data-centric with the emergence of digital communication and information processing.

From historical to modern manifestation: similarities and differences

Among the earliest observed business networks are the banking houses, some of which have survived for centuries to connect economic points through money transfers and capital allocation. More recently, the electric grid, telecommunications networks, and transportation infrastructure, have been centrally important economic engines. All these cases are based upon the need for connectivity in an advanced economy, and the strength of the fabric that enables this elemental go-between as its application layers multiply.

  • For networks, the creation of mature topologies has been expedited by efficient, inexpensive, and ubiquitous digital transmission. The management of new network infrastructure has been aided by improved and less capital intensive solutions. (By the same token, some networks have as a result been quicker to collapse or be replaced by newer variants.)

Multiplicity as value driver

Like banks and transportation systems traditionally, new digital networks facilitate the transfer and storage of value, but now these value units are made of data bits, and the systems that are built to process these do so in increasingly intelligent ways. Data stores within the network accumulate data sets from nodes and clusters, package these with improved effectiveness, and create network effects thus on superior computing power. This requires ownership of good product — internal as well as market-facing.

  • Brands have sometimes been confused for networks, due to their market presence and clustering effect, but this is not necessarily the case.
  • Messaging applications are multi-directional, but usually single-dimensional, and their network effects can be accordingly fickle.

Product depth and network presence

Given the foregoing reflections — the implied or explicit combinations of networks and products, and the products that are sometimes networks and networks that are sometimes products; given the unique characteristics of each of the two categories and the interconnected dynamic between them; given the influence and dependencies of each upon the other — it may be worthwhile to consider the strategic consequences of these ideas in a market context.

  • Networks are necessary to products, which are otherwise isolated and lifeless. (The life and very character of products can be substantially enriched by networks.)
  • It can be easier for a network to launch a product than for a product to launch a new network, because network effects are difficult to create and predict. But a thoughtful combination of products may succeed.
  • Many businesses do not operate in pure product or network form, but combine aspects of both to varying degrees.
  • It is possible to show long-term success as pure product, but not without continuous upgrade, update, or reinvention… which eventually becomes a network of sorts.

* Note

Einstein’s general relativity showed that the four-dimensional fabric of spacetime was not merely a container for objects, but was determined by and in turn helped to determine the motion of objects within it. Some drew a comparison between this and a choreographed dance of tangled influences. Networks and products, in the new economy, constitute a similar entanglement of relatives that, going forward, is likely to dominate the industrial universe.

Investment, finance, strategy, execution in the networked tech economy. https://www.linkedin.com/in/danramsden

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