Ten Commandments for Success on the Net

A friend of mine from Microsoft recently explained how the world's most powerful software company had missed the biggest transformation in computing since the PC. His colleagues were thinking like rational engineers, he said. They assumed computer users would prefer the faster response, better sound, and crisper graphics of CD-ROM over the barely controlled chaos of the Internet. The company, he vowed, would not make the same mistake twice. Or would it? Today nearly 1,400 software engineers are expected to report each week on how they're helping Microsoft win on the Net -- about the most un-Net-like approach imaginable. When another friend, this one a Microsoft rival, heard about the plan he breathed a sigh of relief: "Thank goodness its 1,400 engineers. If it were just 20 we'd be in trouble."

Welcome to the mind-bending logic of business on the Net.

The Internet is the most dramatic economic phenomenon of the decade, but many other Nets touch our lives. When I discuss "the Net" I mean any reasonably large, decentralized, interdependent system that affects how people work and live. That definition includes telephone networks; trading systems for stocks, bonds, and commodities; fax systems; travel networks. Nets don't just affect the fortunes of individual companies; they also overturn many cherished assumptions about how to compete, innovate, and manage.

In short, Nets change the guiding logic of business. Here are ten principles that explain the new logic.

1. Nets route around greed.

Forget Gordon Gekko. Nets detect and subvert excess at every turn. In theory, all markets work this way; companies that overreach or underperform create openings for new entrants. But "free markets" have never been all that free. Big companies deployed an arsenal of weapons -- distribution clout, saturation advertising -- to create entry barriers and limit competition. Nets obliterate those barriers.

Here too Microsoft is a case in point. Within months, its attempt to create a proprietary online service, the Microsoft Network (MSN), went from a feared juggernaut to a strategic failure. Why the retreat? Because the me-first logic of operating systems doesn't conform to the logic of the Net. Now Microsoft is scrambling to "open" MSN by forging alliances with America Online, Sun Microsystems, and other partners.

2. Generosity begets prosperity.

More than 70 years ago, Gillette turned marketing upside down when it gave away razors to sell more Blue Blades. The Gillette model has become standard operating procedure on the Net.

Netscape is the most famous example of strategic generosity. By allowing users to download its Navigator software for free, Netscape created a new technical standard. And because it established a standard, Netscape was able to sell so much server software and related products that it became the fastest-growing software startup in history.

3. Open systems win over time.

Nets punish ruthlessly any attempt to control how they want to evolve -- a lesson Apple has learned all too painfully. Companies that follow Apple's proprietary model are doomed to suffer the same consequences. The smarter course is to embrace emerging standards and innovate within them.

Consider the market for notebook computers. The leading products are all perfectly compatible with one another and with the broader environment in which they operate. Yet each offers distinct benefits and features. Compaq's notebooks are light, rugged, and fast; Toshiba's have best-in-class displays; Dell has unsurpassed direct marketing and delivers its products overnight; IBM's notebooks have internal bays for many different modular subsystems.

Nets reward this approach to competition.

4. You can't predict the future.

The history of Nets is one of surprise innovations from unseen directions. That's because Nets respond to new ideas at blazing speed. It's simply not possible to predict in advance the "killer app" for a new technology or the next big use of an existing technology.

Think about the multibillion-dollar market for pagers. No market research could have predicted all the exotic new uses for pagers: investment management, news distribution, sports information, whale-migration tracking. "Researching" your way to success virtually guarantees failure. The right approach is to design products for rapid adaptation and to observe carefully as new uses emerge.

5. More is different.