Marcus Cake

IT analyst, IDC, has predicted that 2006 will bring “open innovation” in information technology product and service development (the “open-source effect”) and online delivery of information technology as a service (the “Google effect”). “The Google effect may be prompted by the fear that Google and Yahoo will dominate more markets in the years ahead.”

The Open source model of building software harnesses the collective knowledge of a group of volunteers to build complex software. This software includes Linux and more than 10,000 other open source software applications. They collaborate through web sites such as Sourceforge. The motivation of people who volunteer their time will not be addressed here. The potential for such an open source model to apply to non-software endeavours will be.

Over the last few decades, information technology has had a significant impact on productivity. Individuals use a desktop to improve their productivty. Organisations use enterprise wide software to record and process transactions and coordinate their activities on a global stage. Many organisations are yet to feel the full impact of technology.

Why will such a change occur now? The key reasons include:

• the maturation of key technologies which allow every individual to capture, store, process and transmit information like a multi-national corporation
• the penetration of broadband internet to the home
• the increasing proportion of economic activity and everyday life that is information based
• the comfort with which the vast majority of consumer use computers and the internet

We are watching some industries being transformed. The music industry and telecommunications industry come to mind. We can watch how the various players endeavour to resist the change or adopt new approaches. In some industries, there is simply no new approach to adopt. For example, a landline telecommunications provider cannot adapt to free Voice over IP. Making free phone calls over the internet renders such providers obsolete.

Other industries are just beginning their transformation. Financial markets come to mind. Financial markets have embraced the internet as a new distribution channel, but the fundamental basis by which products are manufactured and distributed remains largely the same. Fundamental change is yet to come, but the timing is hard to predict. Some commentators believe that this industry change will occur rapidly. B2B markets empowered by the internet are forecast to change 90% of industries by 2010. The accuracy of this forecast wwill vary from industryto industyry. Each industry will experience its own evolution or revolution. In 1999, one author predicted that 70% of people employed in the financial services industry would lose their job. This did not occur, but I believe the change is inevitable.

Over the next few years, collective knowledge networks like the open source movement will move beyond developing open source software, to manufacturing and distributing products products and services in other industries. Collective knowledge networks may be more efficient than hierarchical organisations. The internet will be essential to coordinating collective knowledge networks.

More catalysts that may be required to spawn change. Linux on the desktop is one important development, but it should not be overstated. The Linux desktop offers more than reducing the costs of operating a business, or replacing Windows for the sake of replacing Windows. Linux can replace the desktop, but is also a window to millions of dollars of intellectual property to execute business and compete with much larger organisations. Linux runs approximately 70% of the internet and is a proven performer. The Linux desktop has been promised for many years. I suspect that a quality Linux desktop will become a reality in the next 12 months.

One of the greatest markets to emerge will be for internet products and services less than US$5, which are forecast to generate US$30b in revenue by 2010. I can certainly see the consumer opportunity. Of far greater interest, is the B2B opportunity and the transformation of key industries.

Google and Yahoo are seen as a prime opportunities for investors to gain exposure to this emerging revolution. The valuation of both has a significant premium which builds in, as yet, unknown future business. Expectations are high. There will be many other companies that enter this space. Most will not survive. A few will emerge quickly and will literally change the world …