1. ©Michael Borrus, 2003 Source: US Department of Commerce US Industry Consumption of IT 1940s-1990s

2. ©Michael Borrus, 2003 The US as Launch Market for Networking and Use of IT Enabled by domestic telecom deregulation/divestiture – 30 years of gradual deregulation of infrastructure to introduce competition throughout = innovation – Boosted by deregulation of US service sectors (e.g., finance, insurance, airlines, etc.) – Spurred by response to foreign competition in open US economy Driven by industrial users – US industrial consumption of IT rose rapidly (previous slide) – By most metrics, US per capita use of computing and communications leads all other nations (except in wireless!) Data networking is discontinuous with past communication industry practices and business models

3. ©Michael Borrus, 2003 Major Networking Discontinuities Technology: 3 Discontinuities – intelligent CPE, new transmission technologies (MW, digital, wireless, fiber), packet switching, = multiple technical trajectories vs. unified, circuit-switched Bell system – Digitization = flexible separation of ownership from control (next slide) – Internetworking = flexible re-integration under end-user control Applications: 3 Discontinuities – Radical growth in usage = data traffic matters – Radical shifts in usage = fundamentally new ‘traffic patterns’ require new network characteristics (next slides) – New applications support economic reorganization: Innovation is driven by end-user (User-driven innovation = hallmark of internet)

4. ©Michael Borrus, 2003 Flexibly Separable Management and Control Layer application infrastructure application phys. facilities management and control Bell System Digital NetworksComputing HW Platform OS/Middleware applications

5. ©Michael Borrus, 2003 distinct old media, different communication patterns live delayed one-to-one one-to-many phonememo live TV newspaper Source: Francois Bar, 2000

6. ©Michael Borrus, 2003 Internet: emergence of new communication patterns livedelayed one-to-one one-to-many “talk”E-mail M-bone listserv few-to-few netmeeting Web one-to-few few-to-many groupware “mixed times” pointcasting supplier auction cooperative computing Source: Francois Bar, 2000

7. ©Michael Borrus, 2003 Discontinuous User-Centered Innovation Example: Business Data Networking Explosive Growth in Data Networks – +10%-30%/mo. on Internet Backbone and Corporate Networks Entirely New Patterns of Use – NOT extrapolation of past uses – Examples: cooperative computing, pointcasting, agents, applets Source: Hewlett-Packard

8. ©Michael Borrus, 2003 Network Deployment cycle 1. automate 2. experiment 3. re-organize Iterative Cumulative Structured learning Embedded knowledge Path-dependent Learning by doing Learning by using

9. ©Michael Borrus, 2003 Securities Industry Example Source: Manyika and Nevins, McKinsey (2003)

10. ©Michael Borrus, 2003 Corporate Network Generations automate experiment re-organize automate experiment re-organize automate experiment re-organize automate experiment re-organize public network private network hybrid network Web-based and out-sourced 1975-85 1995-? 1985-95 ? Source: Bar and Borrus, 2000

11. ©Michael Borrus, 2003 Failures of implementation Much technology doesn’t actually work or work well enough (ERP, CRM) Partial and abandoned implementations Failure to focus on highest leverage areas for productivity and new value-added Failed to transform underlying business processes Failure to experiment, learn, reorganize

12. ©Michael Borrus, 2003 Successful Practices Co-evolution of technology and business practices (know- how to exploit = complementary asset) Ruthless focus on productivity improvement (especially reducing costs of interaction for networked production structures) and/or new value creation – Efficient IT asset management (efficiency of deployment) – Business Productivity and Value: Reduce input for given output Increase output for given input Increase value Sequential automation-experimentation-learning iteration; layering new on legacy that works Reorganization (including, where necessary, planned cannibalization of working legacy infrastructure) and new cycle

13. ©Michael Borrus, 2003 Building Sequentially Through Automation, Learning, Experimentation and Reorganization Source: Manyika and Nevins, McKinsey (2003)

14. ©Michael Borrus, 2003 Enterprise Spending –2002 (Rough Gartner Estimates) Source: Gartner Group, (2002)

15. ©Michael Borrus, 2003 Now: Need to Manage Complexity Complexity of high-end enterprise networks is out of control – Shift from investment (’95-2000) to productive utilization of in-place assets – Creation of business value = ROI, top- and bottom-line impacts IT vendor performance measured (and compensated?) by improvement in customer business metrics – Back to the future: Increase in vertical industry knowledge essential

16. ©Michael Borrus, 2003 Future Trend: User-driven, Automatic, On Demand Edge user-driven ‘On demand’ functional capabilities – Grid computing = aggregation of available cheap compute resources – Self-organizing (allocating, configuring,optimizing), self-managing (diagnostics/healing) – Virtual infrastructure services supplied as utility allocated on demand in real-time (OS, middleware, modular application services) – Web services (on-demand applications thru web and other user interfaces) But the reality is VERY far from the vision

17. ©Michael Borrus, 2003 Evolution to On-demand Networking application phys. facilities management and control Digital Networks Computing HW Platform OS/Middleware applications Virtual Platform Configuration (compute and com resources.) Self-managing, Virtual OS/middleware Infrastructure Services (incl.application components) End-user Interfaces, Tailored applications (Web Services, etc.) On-demand Networking

18. ©Michael Borrus, 2003 Comparative ICT Investment in OECD Countries

19. ©Michael Borrus, 2003 Internet Usage Metrics

20. ©Michael Borrus, 2003 Internet Adoption in Europe

21. ©Michael Borrus, 2003 WEF Network Readiness Index vs. Per Capita Income

22. ©Michael Borrus, 2003 Communications Access and Broadband Penetration

23. ©Michael Borrus, 2003 Phone vs. PC: A Tradeoff?

24. ©Michael Borrus, 2003 Consumer Broadband Market Projections

25. ©Michael Borrus, 2003 Consumer/Small Business Broadband