Author of the international bestseller, "The Digital Economy and Growing Up Digital"

May 11, 2000

International bestseller, Don Tapscott discusses his new book, "Digital Capital," along with some of the case studies covered in the book, which include eBay, Cisco and Linux, among others.

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NetLibrary: netLibrary is pleased to welcome you to an interactive discussion with Don Tapscott author of five widely read books on the application of technology in business, including the international bestsellers, The Digital Economy and Growing Up Digital. Tonight Mr. Tapscott will discuss his new book, "Digital Capital," along with some of the case studies covered in the book, which include eBay, Cisco and Linux, among others. Without further ado please welcome Don Tapscott.

Don Tapscott: Hello Everyone!

Hollman: How did you get started in this line of work?

Don Tapscott: In 1977 I was hired to manage the "office of the future" research at Canada's Bell Labs - Bell Northern Research. We investigated how workstations and networks including the Internet changed the nature of managerial work and business models. In 1980 I wrote a book based on that experience. It didn't sell well. It was a study in bad timing. I think my mother bought most of the copies.

R2D2: How did you decide on the specific "case studies" for this book?

Don Tapscott: I chair a think tank which, as of yesterday, is renamed Digital 4 Sight, and we investigated 200 business webs as part of a large multi-million dollar investigation. This was sponsored by a number of large companies - leaders of the digital revolution. >From the 200 we reported on 28 across a wide range of industry sectors and from that we developed a taxonomy or a way of categorizing and describing new business models, along with a new language to discuss these new creatures. We came to the conclusion that industry-by-industry these new models, described the cases in the book, are destroying the old model of the corporation. So the key to competing in this new economy is not agility, quality, re-engineering, sound management, or innovative marketing. All of that has become good housekeeping, or corporate hygiene. The key to competing is business model innovation, in the sense that new business models are replacing the industrial age corporation and are at the heart of wealth creation and competitiveness.

Info Rama: Do you think the Stock Market volatility experienced in April was just a needed market correction or the end of the Internet glory years?

Don Tapscott: It certainly was a helpful correction. But far from the end, we're at the second pitch of the first batter of the first inning of the digital economy. This is not like tulips from the 16th century. This is not a product. It's not like biotech from the '80s, as this is not a sector. It's becoming the infrastructure for all sectors. As for the doomsayers who call this The Titanic, there's some truth there--but think the movie, not the boat. Fundamentally, investors view the market wrong in my opinion. They think the new economy is technology and the old economy is everything else. Or the new economy is NASDAQ and the old economy is the DOW. This is wrong. The new economy is new business model companies that are exploiting a new communications medium to change the way they create value for customers. The old economy is old business model companies. There are technology companies in both new and old. Just like there are soap and automobile and mining companies in both new and old. If you view the market this way, you can participate effectively. This is not just a theory. Eighteen months ago we launched a mutual fund in Canada called the E-Business Fund, with Altamira Investments. This fund is up over 300 percent not withstanding all the recent turmoil in the market. And we select companies based on their business models. And on a new set of criteria, very different than the lenses that we used to select stocks in the old economy and in this case the proof is in the pudding.

Specularity: Don when you started doing speeches, presentations and workshops for the larger companies such as an IBM, what was their conventional thinking at the time regarding e-commerce?

Don Tapscott: I started doing this in 1981. Most companies thought I was "a bit out there" to say the least. This was pre-PC, and managers or professionals did not use computers; they were used by secretaries for word processing and by technicians. It was a radical idea that managers could be supported directly by tools for communications, decision-making and information handling. The skepticism about how networking changes business strategy continued well into the '90s. Although, Paradigm Shift, my first bestseller in 1992, changed my personal credibility in the market. The most important development occurred a couple of years later with the implementation of the graphic browser, first Mosaic and then Netscape. The first time I saw Mosaic I knew as Victor Hugo says, "There's nothing so powerful as an idea whose time has come." The time had arrived for--and we entered the early turbulent days of the birth of a new medium in human communications. But we're still really just beginning.

Gimme It: How are business strategies for bWebs, and e-commerce being taught at places like Harvard Business School?

Don Tapscott: Very unevenly. Old paradigms die hard. And many business schools get it, but many do not. I continue to see our courses and seminars and conferences organized by the b-schools along traditional lines, such as "strategy, marketing, human resources" and possibly throwing in a session on e-commerce, almost as an afterthought. There's no such thing as strategy that doesn't embrace the Net and new business models. You can't look at the human resource without understanding the Internet working of human capital as we describe in the new book. Just about everything we know about marketing is becoming obsolete as the four P's of marketing, "Product, Place, Price and Promotion" are no longer a valid framework. This shouldn't surprise us that old institutions take time to change. But, punishment is proving to be very swift and those that don't reinvent themselves quickly will become obsolete and irrelevant. There's another issue here, which is not just the content of the b-schools, but also the model of pedagogy. We have an old model of learning based on the professor who is assumed to have knowledge. He transmits that knowledge to students who are presumed to be empty vessels. The model in all education, both K-12 and post secondary, is one of "broadcast learning." It's one size fits all, teacher focused, and not oriented to the learning style of a new generation of learners. We need to exploit the Internet to reinvent our basic model of learning, to have a customized, self-paced, lifelong, learning environment.

Just Here Don: In the successful companies that you studied while researching this book, was there a common element they all shared?

Don Tapscott: Great question. Of course they were all new business models. But beyond that, most had not really understood the process whereby they were able to innovate a new business type. We actually had to reverse engineer the process whereby they figured it out. So eBay kind of stumbled into it, as the legendary story goes. ETrade was very focused on creating value for customers. They are what we call and aggregation bWeb. Cisco is a value chain bWeb that was focused on harnessing the power of partners to create value. Linux (and Alliance) was a self -organizing movement of volunteers who loved the camaraderie and wanted to make something wonderful. Enron, a distributive network, was looking for ways to leverage the Internet to create new models for gas distribution. The common elements in all of them are what we call the disaggregation and reaggregation of value. They all started with a value proposition--something of value that they thought would delight customers. In the case of ETrade, craving a great stock broker that would give you access to the market, knowledge, advice, the ability to do trades and so on. And then they disaggregated that value proposition into its elements - bringing together partners on the Internet to deliver this value to customers. All of them didn't fully understand what they had done or how they'd gone about doing it. And that was one of the great insights, which were teased out from the research. As for other characteristics, curiosity is a big one. Openness to new ideas, a lack of respect for tradition, and a sense of urgency were also common across all types.

Not Novell: Sorry, but your title, "Digital Capital" sounds almost oxymoronic. So, how much "hard capital" do you think is supporting the Internet businesses?

Don Tapscott: Digital capital refers to the new class of assets that are the foundation of wealth. In the agrarian economy the key assets were land. If you owned land, you could create wealth. In the industrial economy the key assets were financial capital, physical plant, and physical resources. All of these are becoming relatively unimportant. Even financial capital is a fleeting asset. 25 years ago Microsoft had none. Today, they're one of the most valuable corporations in the world. And they won't have any in 25 years if they make a couple of mistakes. So, it was 10 years ago that Peter Drucker said the only meaningful form of capital is knowledge, or intellectual capital. And he was right. Over the last decade most leading thinkers have described intellectual capital as having three elements - First, human knowledge and brainpower that walks out the door every night. Secondly, structural capital that doesn't walk out the door contained in knowledge management systems, and organizations, culture, etc. And thirdly, customer capital contained in your brand market share, etc. However, nobody as yet understood how the Internet changes each of these. We argue that the Net transforms these three forms of intellectual capital to create something fundamentally new. Human capital becomes Internet worked and you can have it but not have to own it. So, when you fill out a product review on Epinion you get a business card. You become part of their human capital. Secondly, their structural capital becomes the capital on new business models. The eBay business model is itself a form of capital. It enables the generation of wealth. And thirdly, when customer capital becomes Internet worked it becomes relationship capital - changing everything about marketing. The brand is no longer a promise or image or "word in the mind" as conventional marketing wisdom says. It becomes a measure of your relationship capital. This is what we're referring to when we use the term "digital capital." It is what happens to intellectual capital when you Internet work it.

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