The Future of Success (7 page)

American antitrust enforcers are turning their attention to excessive stickiness, and away from mere size or dominance over a given market. The economy is changing so quickly that size and market dominance pose less risk than does ownership of a system of interconnectivity. Here’s a case in point: At this writing, Microsoft owns the basic operating software going into almost all computers—Windows. When it sells Windows, Microsoft includes other products for free, such as browsers and e-mail servers. In 1998, the Justice Department sued Microsoft for monopolization. Microsoft objected. Surely, it argued, a single operating software standard is easier on consumers than many different, incompatible standards. And, besides, what’s wrong with giving away browsers, servers, and other software? Consumers get a great deal this way, said Microsoft.

The problem was that Microsoft’s Windows had become so ubiquitous that buyers and sellers of computers, browsers, and other software had little choice but to license it from Microsoft if they wanted to connect with everything else. This gave Microsoft power to effectively block new products using a different operating system. Arguably—and this was the real concern—it also gave Microsoft power to deter innovation by rivals. So ruled a federal judge.

To see why, imagine what would have happened a century ago had a company named Electrosoft patented the design of electrical plugs and sockets. Say its design has four prongs, arranged vertically—perhaps not the most efficient design possible, but Electrosoft is the first and biggest company in this new market for electrical appliances, so its four-prong vertical design becomes the standard. Soon all homes have Electrosoft sockets in their walls, and all appliance makers have to use Electrosoft plugs.

The advantage of a uniform standard is obvious. Commercial chaos will reign if there are different kinds of sockets and plugs—some two-pronged, some five-pronged, some arranged horizontally and others on a diagonal. Houses will have to be equipped with all of them. Manufacturers will have to make, and retailers to stock, all kinds. Consumers may even be reluctant to buy new electric toasters or lamps because of the difficulty of matching plugs and sockets. Electrosoft’s four-prong vertical standard has avoided all this confusion, and boosted the fledgling electric-appliance industry. Sales of electric appliances are soaring.

Because Electrosoft holds the patent, appliance makers and building contractors have to pay it a royalty every time they make or install a new plug or socket. As the money mounts up, Electrosoft becomes one of the most profitable companies in America, and the net worth of its president soars to a level approximately equaling the total net worth of the bottom half of all American families. But let us not indulge in envy. Electrosoft has invented something that makes all our lives easier, and is reaping the reward. Schumpeter would approve.

Now suppose Electrosoft starts marketing its own electric appliances along with plugs and sockets—and uses its huge profits to price the new appliances extremely low. It even gives away a free toaster or lamp with the purchase of any Electrosoft plug or socket. As a result, other manufacturers of toasters and lamps are wiped out. And potential inventors of future electric appliances don’t even try. They figure, Why bother? There’s no money to be made (unless they sell their invention to Electrosoft—but at a fraction of what it could have earned otherwise).

A few years later, the prices of Electrosoft toasters and lamps start rising because Electrosoft has no competition. Buyers have no alternative but to pay the higher price. Nor, for that matter, is there much new invention. Refrigerators and electric stoves don’t make an appearance for two centuries, and when they do, each costs a small fortune. The lesson should be reasonably clear. What begins as a convenient standard can end up as a barrier to innovation.

Hence, the tradeoff: The Windows operating system, as a common standard, is a boon to buyers, as are the software “appliances,” such as e-mail servers and Internet browsers, which Microsoft offers at no extra cost. Yet these won’t be boons over the long run if they wipe out competitors. And Microsoft’s strategy will be even more costly if it discourages future entrepreneurs who would otherwise create even better and cheaper software appliances: voice-recognition devices, video mail, three-dimensional Internet, and whatever else lurks just beyond imagination.

This trade-off isn’t new. Every period of rapid technological change creates opportunities—and needs—for new products to help people use and make the most of new inventions. In the early 1880s, when lightbulbs were first invented, bulbs and sockets came in 175 different sizes. The threads on hoses, screws, and other industrial parts that were supposed to fit into one another were almost as varied. By the time a portion of Baltimore was already in flames, the city’s governors discovered, too late, that almost none of its fire hydrants and fire hoses matched up with one another.

Common standards were needed. But rather than one company setting them, the standards were set by emerging industries as a whole, and made freely available to all comers. A standard for lightbulbs and sockets emerged in 1884, the two-prong plug and socket shortly thereafter. Standards for industrial threads were developed by the first decade of the twentieth century (a bit late for that section of Baltimore). In the early 1920s, Herbert Hoover, then secretary of commerce, created the National Bureau of Standards to hasten the development of all sorts of industry standards, free of charge. It was one of Hoover’s finest achievements (several years later, he had the misfortune to be President when Wall Street crashed, and is remembered for little else). As a result, America got the best of both worlds. Uniform standards, combined with a lot of innovation and competition, created a steady steam of inventions that now fill homes and serve businesses.

Stickiness can be excessive if it slows technological change. Hence, it’s important for laws and rules to prevent this from occurring. Even without the antitrust decree, Microsoft would still lose its highly sticky position if a competing language (like Java) or operating system (like Linux) gained enough followers. But in the meantime, it’s not unreasonable that a product like Windows, which has become a basic standard, should be licensed by a different company from the one that sells software applications which run on it, or that it be available to everyone free of charge. It has become part of our common language, like aspirin.
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REPRISE: INNOVATE OR DIE

A brief summary is in order. The first principle of the new economy is that choices are widening and it’s becoming ever easier for buyers to switch and get a better deal. The second principle is that such breadth of choice and ease of switching is rendering all sellers less secure and more vulnerable to competitors—thus spurring innovation.

The American economy is moving from a system of stable, large-scale production to one of speedy and continuous innovation. Big brands are guiding customers to sellers who offer them the best deals. Rivals are doing whatever they can to “unstick” buyers and offer even better deals. Governments are turning their sights on excessive stickiness—private standards or protocols for interconnectivity that become so universal they stifle new ideas.

The winning competitors are quickest to provide lower prices and higher value through the intermediaries of trustworthy brands. But “winning” is temporary, and the race is never over. Those in the lead dare not stop innovating for fear of falling behind. The result is similar to the ideal Joseph Schumpeter envisioned, before the era of large-scale production made him cynical about entrepreneurship. We’re witnessing an explosion of innovation, leading to better products and services. Productivity is rising, and inflation is moderating. Buyers are enjoying lower costs and better values.

The trend must not be overstated. There remain many sectors of the economy where large-scale production still prevails. Efficiencies of production scale will probably never entirely disappear. Innovation is occurring most rapidly where technologies are giving customers the widest choices and easiest means of switching to better deals: in entertainment, finance, new media, software, and Internet-based communications. Not incidentally, these also are the fastest-growing sectors of the economy. But others are also changing. Much of the retail sector is about to be transformed by the Internet. Old, heavy industries like autos, chemicals, and steel are shifting from high volume to more customized products and using Web-based business-to-business auctions to find the best suppliers. Construction, health care, publishing, and education (including higher education) remain far removed from the cutting edges of innovation.

You are also cautioned against confusing the longer-term trend I’m describing with the expansionary phase of a business cycle or with gains in the stock market. At this writing, the American economy has experienced the longest expansion in history, according to available historical data, and stock-market values are still high. By the time you read this, the expansion may have ended and the stock market may have corrected itself with a bruising thud. But the underlying structural trend discussed in these pages is likely to continue nonetheless. It depends less on overall levels of supply and demand, or on the exuberance of investors, than on technological innovation.

To the extent that technology is destiny, the spirit of innovation will eventually extend throughout the entire American economy, and to other economies around the world. This is unambiguously good news for every buyer who seeks a better deal. But the news is more ambiguous for other aspects of our lives, as we shall see. And although technology is setting the pace, our destiny is not beyond our control.

CHAPTER THREE

R
ECENTLY
I received an e-mail from a former student who’s working for a small company in New York. She’s devising games that thousands of people can play with one another simultaneously over the Internet. “I’m spending six hours a day coming up with new ideas and twelve hours selling them,” she wrote. “Cool stuff! And with my stock options, at the rate things are going, I’ll be a multimillionaire in three years! Best to you!”

My former student may well be disappointed three years from now. But undoubtedly the demand for creative and innovative people like her is growing because of the increasing importance of innovation to the economy. Enterprises whose members discover the most imaginative possibilities, for which there’s the greatest demand, generate the highest profits—at least until rivals catch up. Their brand-portals inspire the most trust. They are likely to be the “stickiest.” And the people who contribute the most to them have (or have a shot at) the most lucrative and often the most interesting jobs found anywhere.

The demand for creative innovators continues to exceed their supply. As buyers switch more easily to better deals, competition is spreading and intensifying. Innovation is occurring in more places, among more products, inside more organizations. And wherever it occurs, it creates the competitive necessity among rivals to innovate as well. The supply of creative innovators, in other words, ignites still more demand for them. And as the demand for them grows, their economic rewards grow in tandem, because the supply can’t keep up.
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My former student, and legions of twenty- and thirtysomethings like her, are the direct and immediate beneficiaries.

There is a common misperception that today’s innovators are particularly adept at using new information technologies, especially computers. I may have inadvertently contributed to this view by once using the term “symbolic analyst” to describe the top tier of workers, almost all well educated, who apply systemic thought to identifying and solving problems. Because the new technologies involve symbols and speed analysis, and because the advent of the personal computer roughly coincided with the time when the incomes of well-educated workers began to rise quickly relative to less-educated workers, it seems a logical inference that computers and related technologies are directly responsible. Further, it would seem likely that an education stressing analytic skills of a sort that would complement the new technologies is the best preparation for the work of the future. But these assumptions were, and are, incorrect.

In fact, many of the people who are gaining the most value in the new economy aren’t especially skilled in using computers or other information technologies. Their value is only tangentially related to their computational prowess or capacity to solve complex problems. They are not even any longer accurately described as “knowledge workers,” because any particular body of knowledge is now so easily encoded into software. The real value these people add to the economy derives instead from their creativity—their insights into what can be done in a particular medium (software, finance, law, entertainment, music, physics, and so on), what can be done for a particular market, and how best to organize work in order to bring these two perspectives together. They are
creative
workers.

My former student has no particular technical expertise. She majored in art. But she apparently has a wellspring of good ideas about how people might want to be linked in cyberspace through giant games they can play together. Her value turns on her inventiveness and her insights into the market, rather than her knowledge of digital technology.

The new information technologies are important, but their effects are indirect: They magnify good ideas. Technology increases the value of creativity by allowing it to be spread quickly throughout an organization’s network and, ultimately, to consumers. As noted, it also gives consumers more choices, and thus increases the pressure on all sellers to innovate. Great ideas are the new currency of the realm. Information technology is the bank that circulates the coins ever more efficiently.
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Some people may be more creative than others owing to innate talents, perhaps found in genes somehow linked to creative insight. But much of creativity has to do with the families and circumstances you’re born into. Parenting is important. Later, I’ll share with you evidence about the long-term effects on infants and toddlers of receiving a lot, or a little, caring attention, and I’ll present some tentative evidence about the effects of the community in which a child is raised. Surely, education is crucial. Despite the unfortunate fact that most schools are still organized around the old industrial model in which children are treated like unfinished auto parts moving along a conveyor belt, which teachers try to bang, twist, and mold into shape as they pass, formal education does at least teach most of us to read and thus gain access to a world of ideas. It also links us to history and to methods of argument and means of experimentation, all of which are useful in the pursuit of new ideas. Some of us have been lucky enough to be inspired by a great teacher who opened our minds and eyes to new possibilities around us and inside us. Higher education gives us tools to discover even more. And as I will explain later in fuller detail, a good university also connects us with people who can utilize our ideas and profitably direct our energies. Undeniably, the incomes of people with more years of schooling continue to rise relative to people with fewer years.

GEEKS

At the core of innovation lie two distinct personalities, representing different inclinations, talents, and ways of perceiving the world. The first is that of the artist or inventor, the designer, the engineer, the financial wizard, the geek, the scientist, the writer or musician—the person who, in short, is capable of seeing new possibilities in a particular medium and who takes delight in exploring and developing them. The medium may be highly technical, as in computer software or finance, or more fluid, as in the fine arts. This person finds pleasure in stretching the medium as far as it can be stretched, testing its limits, discovering and solving new puzzles within it. I’ll call him a geek, because that’s how he’s often caricatured in the new economy, but he is in fact more than a geek; he’s a dreamer, a visionary, sometimes a revolutionary. And his vision is not limited to technology. The true geek can be inspired by any means of expressing innovative ideas.

When the geek bestows his highest accolade on some software—that it’s
cool
—he is making an aesthetic judgment. It is cool because it is original and beautiful; it has crossed a conventional boundary, and solved a problem in a surprising way. Cool software is, perhaps, elegantly simple, or it can perform an operation that no one had previously thought of, or it is lovely in the sense that only one steeped in software design could fully appreciate. It reflects insight and dexterity on the part of its designer. The pleasure in devising or beholding it has nothing to do with its likely market value, and everything to do with its artistry—its cleverness, its acuity, its perfection. It is the same pleasure the artist (or an art critic) takes in a painting that is both original and powerful, or the musician takes in a musical composition (or in her performance) that takes the medium to a new level of intensity, grace, and mastery. It is an
insider’s
appreciation. “Cool” was, after all, the term used by jazz musicians of the bee-bop generation who broke through the melodious conventions of the age and introduced a new aesthetic—a new rhythm and sound.

A geek’s pleasure is linked to novelty, and discovery. Harvard psychologist Ellen Langer, an expert on creativity, terms this attitude “mindfulness.” Someone who is merely analytic, rather than mindful, maps out current options and seeks to optimize outcomes. The mindful person seeks out new possibilities. “From a mindful perspective,” Langer writes, “one’s response to a particular situation is not an attempt to make the best choice from among available options, but to create options.”
³

Creating something that’s new and intrinsically beautiful or “cool” entails a process of discovery. You don’t know what you’ll find when you set out to find it, nor are you completely clueless. Writer Annie Dillard explains it like this:

First, you shape the vision of what the projected work of art will be. The vision, I stress, is no marvelous thing: it is the work’s intellectual structure and aesthetic surface. It is a chip of mind, a pleasing intellectual object. It is a glowing thing, a blurred thing of beauty.         .         .         . Many aspects of the work are still uncertain, of course; you know that. You know that if you proceed you will change things and learn things, that the form will grow under your hands and develop new and richer lights. But that change will not alter the vision or its deep structures; it will only enrich it.
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The creation of new possibilities can be all-consuming. The geek melds with the software he is designing; the musician is enraptured by the sounds and tempo; the research scientist is absorbed by samples and measurements. Put one of them alone in a room with the right equipment, and he can summon an almost inexhaustible store of enthusiasm for finding new possibilities. The inventor is not antisocial, certainly not misanthropic. But empathy is not his strong suit. He often finds greater satisfaction in interacting with the technology, or with the music, the film, or another medium. What pleasure he derives from interacting with people comes from ensemble work, from the excitement of shared invention, and the sparks that fly when minds collude and collide in the same medium. It is the shared artistry of the musical ensemble, the acting troupe, the research team, the writers’ workshop—the joy comes in joint mastery, from the collaboration in achieving something even more beautiful, ultracool.

SHRINKS

The geek is a necessary, but not sufficient, source of commercial innovation. A second personality is essential to it as well. It is that of the marketer, the talent agent, the rainmaker, the trend spotter, the producer, the consultant, the hustler—the person, in short, who can identify possibilities in the marketplace for what other people might want to have, see, or experience, and who understands how to deliver on these opportunities.

This second personality type is no less creative than the artist, inventor, or geek, but her creativity is of a different kind. Rather than seek novelty in a particular medium and find joy in overstepping its boundaries, she exercises originality in identifying people’s possible wants and latent desires—desires that even those people may not have been fully aware of possessing, desires for products that do not yet exist. She is no less an expert than the geek, but her expertise, rather than involving a thing or a medium, focuses on others—business customers in a particular industry or sector of the economy, a set of clients, a cohort of young Internet users, likely voters—and she builds on that expertise by imagining new ways of satisfying and delighting them. She is no less absorbed in what she does than the geek inventor, but her absorption is in discovering what people want rather than in what a given medium can do.

This talent should not be confused with that of the conventional marketer or salesperson. These people have specific products to sell, and their job is to persuade customers to buy them. Their art—and it is an art (even a great con man possesses a certain artistry)—lies in knowing how to persuade, how to play upon the customers’ emotional needs, how to turn a tangible product into something more by adding intangible qualities (such as glamour, sexual attractiveness, self-esteem, the esteem of others) that the customer desires for herself. In his smoothness, manipulativeness, and even his occasional failures, the salesman is something of an American icon—Sammy Glick, Willie Loman, the Madison Avenue advertising executive, the man or woman on the make.

But the person I’m now talking about—this second kind of creative innovator—has no particular product to sell. As has been noted, products increasingly can be built to order; services can be customized, software can be tailored to the needs of a particular business. Instead of persuading customers to buy a particular thing, her job is to imagine what they might want if it existed, and figure out how to create and deliver it.

My former student who’s developing giant Internet games is also developing a feel for the kind of interactive cyber-experiences young people will find fun and exciting. She conducts “focus” groups and interviews hundreds of twentysomethings. She watches their behavior as they play various games. Now she’s working with programmers to design ways players can invent their own games and attract other players from around the world to join them. Her artistry comes in asking the right questions, listening thoughtfully to the answers, watching for behavioral cues, and on these bases imagining what the customer will find most appealing or useful. In this sense, she works for the customer rather than on behalf of the seller of any specific product. She is the customer’s agent, consultant, adviser, and voice.

Architect Thierry Despont designs mansions for the super-rich. He does not pretend to be one of the world’s great architects; he is not a trendsetter or a visionary. His talent lies in discovering the personalities of his clients and giving three-dimensional form to their unique desires. “To be successful at my job,” he says, “one must be very good at understanding not only the client’s needs, but also the client’s dreams and memories. One must know where the client comes from and what they desire. Part of the craft is learning to read people, to see things they are sure about, the things they are unsure about; the things they don’t convey verbally, but express through their surroundings.”
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In many respects, this second personality type resembles a counselor or even a psychotherapist, although she would never pretend to have their full set of skills or share entirely their motives. But she does share some of their abilities to elicit and intuit what people want or need. For want of a better term, and because it is important to emphasize the interpersonal nature of this work and distinguish it from that of the traditional sales or marketing role, let me call this second person a “shrink.”