A Post-Modern Virtual Corporation Model

by Jeannie Novak and Pete Markiewicz

In The Virtual Corporation, Davidow and Malone describe the incredible transformation occurring in businesses due to the increasing power of computing technology. Increasingly, a company's power and productivity is based on information creation, processing and dissemination among its components. Replacing physical components of a company with electronic versions allows great increases in speed and productivity.

SIZE NO LONGER IMPORTANT

Virtualization of business is already having an impact beyond increasing productivity and customer response. An important change is the switch many companies are making from building private electronic networks to using the Internet, a collection of 35,000 sub-networks worldwide that speak the TCP/IP language.

In the virtual model, most design operations and testing are transferred to electronic realms accessible to all groups within a manufacturing process. The ability of computers to store and process these virtual company components allows rapid alteration at all stages of production and flexible response to consumer demand.

Since this information can be stored and transferred with relative ease, a company ceases to be localized and can provide the same service from all locations.

Once only the largest corporations could afford to create the electronic network necessary for virtuality, but today the Internet acts as a "superconnector" offering all users virtually the same communication.

Confined until recently to a few dozen universities, the Internet currently connects millions of computers. A key feature of the Internet is that it's locally owned and operated. Companies using the Internet to integrate their business need only pay local access fees rather than the cost of constructing a complete network. Increasingly, companies are dispensing with private networks altogether and using the Internet as their sole connector.

GOING VIRTUAL

Success in a virtual arena is independent of non-virtual components of the corporation. Thus a small startup company has the same chance at running a successful, even dominant, Internet business as does a large corporation which may have, in the words of one executive, "hundreds of people working on the problem."

In the fall of 1993, a program destined to become the Internet's "killer app" appeared -- NCSA Mosaic. Built to run on top of the World Wide Web protocol, Mosaic converts a formless mass of millions of Internet computers into a collection of hypertext links.

Mosaic presents each Internet site as an integrated document, not unlike a high-end word processor with clickable buttons supplying text, graphics, movies and sound. The free availability of Mosaic contributed to its popularity. Hundreds of thousands of copies were downloaded from the main NCSA site in only a few months. Amazingly, the software to create Mosaic documents and to supply them to the Internet is also free.

Mosaic, along with low-cost Internet access for users (about $17/month for a 14.4Kbps modem connection with time measured at $2.00/hour), prompted us to form Kaleidospace in January of this year. One of the company founders, Jeannie Novak, had been producing an album of original music independently and was investigating ways in which artists could distribute their works.

Though it is possible using current technology to produce a CD independently, traditional methods of promotion and distribution require a large company's resources. Novak reasoned that if the promotion and distribution mechanism were translated into the virtual realm. it would be possible to duplicate the reach of a large company using computer bytes rather than an expensive physical plant. This brought us to our first discovery.

By using the Internet, small companies can develop a virtual presence as rich, connected and powerful as the largest corporation.

It was possible for Kaleidospace to create an Internet site, potentially visible to 20 million users, for a cost comparable to other startups -- about $30,000.

The presence of a large physical plant was not necessary, since creating a virtual corporation (essentially software development) is easily within the reach of current computers. In Kaleidospace's case, desktop publishing and multimedia had created inexpensive tools for digitizing images, movies and sound. More expensive tools were not necessary for several reasons. First of all, to reduce piracy we decided to provide samples of artists' works rather than complete pieces. Secondly, transmission speeds on the Internet are not high enough to allow real-time video or CD-quality sound. This restricts promotional material to a size easily handled by individuals.

Within two months, we had completed Kaleidospace. The more virtual a service is, the better a small company can compete effectively with larger ones. The clearest example of this came with one artist who contacted us from Croatia -- where few would be likely to send mail, let alone call. Email discussions proceeded rapidly, without long-distance charges. The Internet provides a contact system with global reach at low cost.

COOPETITION ARISES

After we completed programming, we learned of the presence of other companies with similar ideas. The Internet is bound to attract a host of competitors, particularly after "secure" versions of Mosaic become available this fall via CommerceNet and NCSA. Packages providing for accounting and online ordering will probably be priced in the $10,000 range -- well within the reach of startups.

What's the consequence of many companies sharing the same superconnector? Meta-companies appear which unify various companies under a common interface. These companies may also share resources, such as disk space, in a model for interaction involving both cooperation and competition (Novell founder Ray Noorda coined the term "coopetition").

Since virtual companies may be copied around networks with ease, and since cost is independent of traffic, it makes sense for several companies to share a common pipe and maximize bandwidth use. This will likely give rise to "server farms," companies which do nothing but provide hard disks and Internet drops for small companies.

SHOPPING MALLS

"Mall" and "marketplace" models adopted by many Internet companies bear out these predictions. The past few months have witnessed the creation of systems, such as O'Reilly and Associates' Global Network Navigator, that unify many smaller outfits behind a common interface. Although these companies do not necessarily store their data in the same place, users see them as one.

Meta companies make little distinction between company size outside the Internet, mainly because there's little difference in the quality of their electronic presence.

LOOMING ISSUES

Starting an Internet business is no different than starting any other company. Virtual corporations face these issues:

1. Money Exchange -- This remains a problem until some monetary standard is established.

2. Common Culture -- The Internet is such an equalizer partly because it enforces a common standard of software, bandwidth and culture. On one hand, this means that the virtual character of corporations can be created convincingly by people from widely differing cultures -- akin to the virtual personalities rampant in MUD and MOO worlds. On the other hand, some Internet features, such as its use of English, are products of a particular culture.

3. Maintaining Identity -- Ease of transmission and manipulation of electronic information, coupled with low bandwidth, make it difficult for companies to sufficiently distinguish their unique styles.

4. Virtual Overload -- As more companies fill virtual space, it's possible that they will begin to resemble a single corporation. The web's current architecture -- sites connected by links -- bears more than a passing resemblance to artificial intelligence expert Marvin Minsky's software agents. Imagine a future where every user pays for Internet use by providing services to agents in a global organization. In this case, top agent levels are software, while bottom nodes are human.

Concepts necessary to describe virtual businesses are undergoing rapid changes themselves -- but one thing will likely remain the same. It empowers individuals and small groups, and it equalizes large ones.

A GLOBAL COMMUNITY

Commercialization of the Internet became widespread with the formation of CIX (Commercial Internet Exchange). However, many old Internet rules have been retained despite commercialization.

Some of these Internet rules, which distinguish it from commercial networks, are such that even companies experienced in electronic communication may find themselves surprised when they move onto the "net."

These differences may disappear as the Internet is commercialized, but many are intrinsic and will not change.

1. User Support -- Users mutually support each other's work by sharing software and information. This supports the notion of a "global community."

2. Distance-Independent Costs -- Internet users typically pay for their connection size, not for the amount of traffic flowing through it or distance. The Internet is not time dependent like Lexis, Nexis or Dialog.

3. Free Information -- Even if a site offers information for sale, at least some information is provided free of charge to all users. This is an Internet tradition which has led to the creation of complete suites of free software which are often better than commercial products. For every proprietary database, there's a free counterpart -- often with the same data.

4. Prosumers -- Similar to Toffler's "prosumers," users look for information rather than being passive. Internet users also send as much information as they receive. Instead of broadcasting data, information providers wait for users to come to them. Hence, "deli," "mall" or "marketplace" are popular Internet company models.

5. Virtual Money -- No good models exist for credit or money. Methods outside the internet are used for financial transactions. As the ability to conduct secure Internet transmissions increases, virtual financial transactions will be commonplace.

6. Misbehavior Punishable -- Companies that exploit Internet resources at the expense of others or broadcast ads are censored. Typically, users become so irate they send "hate mail" to a broadcaster's computer, which slows it down considerably. Ignoring disapproval is likely to result in at least one individual who devotes time to "cracking" the company's virtual presence. So, junk mail leads to computer viruses.

Jeannie Novak & Pete Markiewicz