Chapter 1: The Killer App

The world now runs on Internet time—Andy Grove

Christopher Brennan wasn't trying to start a revolution. The regional manager for British Petroleum's (BP) sixteen hundred gas stations in Germany, Chris was looking for new sources of revenue in a saturated, largely commodity-priced business dominated by a few brands. Then he got an idea. Gas stations were exempt from Germany's rigid shopping laws that required stores of all kinds to close by 6 p.m. during the week and by 2 p.m. on Saturday. Small convenience stores attached to the stations already sold basic staples and impulse food purchases 24 hours a day. Why not really exploit this regulatory loophole? Chris had heard about the future of electronic shopping from his colleague Matthias Richly. Why wait for the future? Why not invent it now?

Working with discretionary marketing funds (and largely on personal time), Chris and a small team created the BP multimedia shopping kiosk, a brilliant combination of digital technology and strategic partnerships with name-brand merchants and credit card companies eager to try a new marketing channel. At the kiosk, consumers use a touch-sensitive screen to view short videos, select merchandise, and get advice on everything from party planning to the latest fashions. All goods ordered at the kiosk could be picked up the next day at the gas station or in some cases even delivered to the customer's home.

Early reception to the kiosk was enthusiastic. German shoppers, assumed to be hostile both to technology and to new services, embraced the kiosk at once. They seemed delighted to be able to order everything for a birthday party or a brunch, based on the recommendations of two-dimensional images. They confounded traditional marketing dogma by using the kiosk to purchase precisely the kind of goods that no one expected anyone would want to buy off a computer screen in a smelly gas station—fruits, vegetables, and even meats. Shoppers began to use the kiosk to replace, rather than supplement, their regular grocery shopping. German consumers, it turned out, were fed up not only with the inconvenient shopping hours but with the quality of their shopping experience. Now they could avoid the crowds, the dirty stores, and the generally unhelpful attitude of the merchants. The kiosk tapped into a channel that conventional wisdom had told Chris didn't exist.

A month into a pilot deployment in Munich, Chris and his team had redesigned the interface several times and increased the number of participating stations. They began making long-term plans to exploit the stations' prime locations as staging and distribution centers, and to deliver the system itself directly to home computers using public networks. Chris and his team were beginning to see that their project had the potential not just to improve gas station revenues but to re-create the very notion of the "station" and the role it played in the consumer's life.

Then they did something really radical. They told the folks at BP headquarters what they'd been up to.

1.2: Is There a Strategy in the House?

Chris's story is a story of digital strategy. A manager suspends his disbelief, looks around at the available technologies that might play some role in his planning, forms a variety of alliances and partnerships, and then executes, fine-tuning the experiment not in the laboratory but in the marketplace, with the customer as a true partner. The final result, at least in this case, may be the worst nightmare not just for BP's competitors but for a wide range of other retailers, wholesalers, and distributors. The kiosk may be, in other words, a killer app.

We have purposefully chosen an example from outside the world of high technology companies to demonstrate the broad reach and applicability of digital strategy. What could be less digital than a gas station? What industry less vulnerable than oil and gas exploration, refining, and retailing? Who less likely to remake the face of the value chain than a lone manager, operating in a country that prides itself on conservatism and adherence to long-established rules of commercial engagement?

But hold on a minute. What does the BP kiosk have to do with business strategy? There was no strategy here, just an idea followed by an experiment. Chris did no long-term planning or detailed analysis of the industry. BP, like all large organizations, has a formal strategic planning process and a group of highly trained planners working away in Britannic House, its showcase corporate headquarters, in London. Chris was only vaguely aware of the planning activities of this group. He certainly wasn't acting on the basis of their recommendations.

Perhaps this is your immediate response. A few years ago it would have been ours. Strategy, after all, is the process that Michael Porter and others have taught us about: careful, analytical, and based on a thorough understanding of current market conditions and leverage points. Strategy is what big companies do from the top down. Strategy takes time to develop, time to execute, time to evaluate. What Chris did wasn't strategy, it was just an application, a reordering of relationships. In a word, it was creative.

In the new world, that is strategy.

1.3: The Killer App through History

It is too soon to say whether the BP kiosk, or even some future version of it, will prove to be a killer app, which we defined in the Introduction as a new good or service that single-handedly rewrites the rules of an entire industry or a set of industries. Certainly it has the potential. Over the last two years, electronic commerce, of which the BP kiosk is an example, has been touted as the killer app that will redefine the entire manufacturing-distribution-retail-finance business cycle, creating gigantic new markets while it undermines existing ones. Estimates for the speed and scale of electronic commerce range from the conservative (a few billion dollars by the end of the 1990s) to the extreme (the entire cash economy will go digital), but there's no doubt that it is a force with which to be reckoned. The question is when, not whether, and we suspect that you or someone in your organization is already worried.

Electronic commerce as a killer app is more a combination of digital technologies than any one particular new component, product, or service. Its novelty and its explosive potential come from an innovative mix of applications. These include multimedia interfaces (now combining sound, motion, text, and graphics); high-powered, increasingly cheap capacities for computing, data storage, and telecommunications; new forms of payment such as electronic cash; and improvements in security made possible by advanced encryption hardware and software. Electronic commerce is the sum of these parts, built on top of and delivered over the open, global computer network protocols and shared communications services known as the Internet.

Many more killer apps have arrived already, and still more are on the horizon. Consider the potential impact on your business of any of the following: Internet-ready televisions, cars, and other appliances, low-cost digital cameras, desktop publishing software and personal laser printers, intelligent software agents, and telephone services over the Internet. And how about applications now in development at the world's leading technology labs, such as rooms that respond to where you are and what you are doing, wearable computers, electronic ink, and personal area networks?

We don't know how or whether these developments will ultimately change civilization, let alone your business. It is easy, though, to find examples of killer apps from history that demonstrate just how unpredictable and indirect their impact can be. In Medieval Technology and Social Change, for example, historian Lynn White, Jr., studied several inventions from the Middle Ages that revolutionized not only the activities they were intended to affect but society as a whole.

Perhaps the most important of these medieval killer apps was the stirrup, which the Franks—Germanic tribes who ruled central Europe after the fall of Rome—adopted from an Asian design. The stirrup made it possible for a mounted fighter to strike with his lance without falling off his horse, greatly increasing the force that could be put behind such a blow. It proved decisive in the Franks' efforts to turn back the marauding Saracens who invaded western Europe in the eighth century, despite the superior numbers of the invaders.

Charles Martel, leader of the Franks, understood from his victory that the stirrup hadn't simply improved the effectiveness of his forces, as a new weapon or fighting formation might have done. Rather, it changed his entire military strategy. Stirrups made possible a mounted cavalry, a new element in the battle equation, and Charles Martel immediately made them a permanent feature.

Neither Charles Martel nor his descendants probably recognized the longer-term impact of their new technology. To support the specialized fighters of a cavalry, Charles Martel created a new class of landed gentry who had sufficient income from the land he gave them to provide men, horses, and expertise. To do this, he seized some of the vast holdings of the Catholic church, permanently altering relations between medieval church and state. He also created a social and political system in which farming peasants were answerable not only to the king but to the landlords, who became known as knights. In the end, the Pope crowned Charles Martel's grandson Charlemagne the first Holy Roman Emperor, an acknowledgment of the new world order.

Thus the lowly stirrup played a singular role in rearranging the political, social, and economic structure of medieval Europe. The Holy Roman Empire, in some form, lasted until World War I. Feudalism, the social and economic system that emerged to support the mounted troops, at the time represented a sudden and violent break from tradition. It persisted for nearly a thousand years, long after the actual advantage of the stirrup in battle had been supplanted by numerous other developments. As White concludes, "Few inventions have been so simple as the stirrup, but few have had so cataclysmic an influence on history."

As this story demonstrates, killer apps have important first-order effects, but their second-order effects are even more far-reaching—as well as being unintended. In 1976, for example, Gerald Ford offered Americans a toll-free telephone number they could dial to share their ideas for "whipping inflation now." Little did he realize that the newly created "800" area code would soon revolutionize telephone sales and service with twenty-four-hour call centers and television home shopping, and create a major source of new business for resource-poor countries like Ireland. Surely IBM never would have believed that its own marketing of a personal computer, with software and hardware from tiny partners Microsoft and Intel, would devastate their mainframe-centered business model and shatter their computer industry dominance in only a few years.

1.4: The Digital Age of Anxiety

To see a more contemporary example of the disruptive power of killer apps, we recently visited the headquarters of the U.S. Postal Service in Washington, D.C. There, executives responsible for technology investment candidly revealed that the postal service has developed a scenario that anticipates a complete shutdown of its operations. Having lost the small package and expedited mail delivery segments, the post office now relies entirely on first-class and bulk mail to support its expensive physical infrastructure, including 200,000 vehicles, 800,000 sorters and deliverers, and 36,000 local post offices. First-class mail is in deep decline, and soon business mail and bulk mail may fall victim to the same competitor: the humble, almost pathetically primitive technology known as electronic mail.

E-mail, a simple hack invented by scientists whose computers were connected during the early days of the Internet, has reached killer app status. Millions of messages are now delivered automatically and virtually without cost every day. By waiting too long, the postal service has probably missed the opportunity to offer electronic postmarks, registration, or other authentication services—from which it could have derived substantial revenue. Postmaster General Marvin Runyon, arguing to Congress unsuccessfully in 1996 for a major expansion into electronic messaging, conceded that "the Postal Service faces growing competition across all product lines" from what he called the "electronic bypass." Given that the post office has had an undeniable legal monopoly on the delivery of first-class mail for the whole 200 years of its existence, this is a pretty remarkable confession. But E-mail emerged so quickly that there wasn't a chance to mount a serious challenge. Now the post office doubts it can even participate.

E-mail is now being adapted for advertising and information delivery in what is called "push technology." Why just send a message when you can send an entire digital product—a multimedia experience? Why call and get an answering machine when you can type a quick note and be confident that it will be received and answered within a few hours, often automatically by increasingly smart systems that can "read" and answer the mail? Why not send everyone in the company a copy of the complete text of an interesting article, including active hyperlinks to the references, when doing so takes only a few keystrokes, no matter if the recipients are down the hall or in Sri Lanka? E-mail, as a killer app, starts by taking out the post office but may end by redefining human communications.

It isn't only Postmaster Runyon and his staff who are feeling threatened by looming killer apps but senior executives in every industry. As part of a Diamond Technology Partners (DTP) study led by former Wall Street Journal reporter and DTP partner Paul Carroll, we interviewed 30 leading CEOs and surveyed another 400 senior executives in early 1997. The survey measured management perceptions of the threats and opportunities of digital technology and revealed tremendous anxiety over the new roles for technology signaled by developments like the World Wide Web, intranets (internal networks that use Internet software), and electronic commerce.

Confusion was evident in every business and across all industries: Executives agreed that technology was changing the basic economic equation of their business, but at the same time held firmly to the notion that in their own organization technology was only a tool to implement strategy. Nearly a quarter of those surveyed confessed to feeling that the rules of competition were changing, and changing in ways made possible by technologies that they don't feel they adequately understand. More than 35 percent strongly agreed that global technology had made markets so transparent that global competitors could now spring up overnight. Few executives felt comfortable saying that they knew how to respond to all these changes, and those few who said they did may have been, as Carroll put it, whistling in the dark.

1.5: Moore Is Less, and More

This discomfort with technology is the result of the remarkable increase in the speed with which killer apps have been appearing since 1947. That's the year the transistor was invented, the beginning of the digital age. Since then, digital technology has been turning out one killer app after another, coming faster and faster and often, as in the case of electronic commerce, working in combinations. Computing devices get smaller, cheaper, and more powerful, moving from mainframes, minicomputers and workstations to personal computers, notebooks, and personal digital assistants and even to computers in cars, in consumer appliances, in roads, in credit cards, and even in clothing. These devices combine with databases, multimedia interfaces, and communications software to create specialized programs for every profession and activity in business life. Daimler-Benz, for example, has already demonstrated an Internet-ready car and in Germany offers wireless on-board computers that use global positioning satellites to give vocal directions to any destination. The global economy is now increasingly ruled by the technology sector, and every industry has been directly altered by it.

A few basic principles explain how it is that digital technology has become the most disruptive force in modern history. The first, which most people are familiar with, is Moore's Law. First articulated more than thirty years ago by an electrical engineer named Gordon Moore, who founded Intel around the same time, Moore's Law is the counterintuitive, wealth-creating, anti-entropy principle that sits, fat, dumb, and happy, smiling like the Cheshire Cat, at the center of the digital universe.

Moore had witnessed the amazing ability of his colleagues to vastly decrease the size of semiconductors (or chips) with each succeeding generation of product, and he determined that the underlying physics of miniaturization had considerable life left in it. As size decreases, power increases geometrically, both because circuits are closer together and because more of them can be placed on a chip. Moore bet his new company on the belief that new generations of chips, with double the power of the previous generation, could be produced every eighteen months. The cost of producing the new chip, according to Moore, would be the same or less than the cost of producing its predecessor, since improvements in manufacturing technology and increased volumes minimized the cost of new facilities. Older chips, produced on equipment already depreciated, would actually get cheaper.

Hence Moore's Law: Every eighteen months, processing power doubles while cost holds constant. (See Figure 1.1) Every eighteen months, you can get twice as much power for the same price, or the same power for half the cost—a remarkably simple, but unimaginably powerful equation. Imagine Henry Ford predicting that the internal combustion engine would double its power every year and a half without becoming any more expensive. By now we'd be driving cars that could take us to the moon for lunch. The engines in these vehicles would be given away with the purchase of a Big Mac.

Moore's Law has operated with remarkable accuracy for thirty years and, according to computer architect Gordon Bell, it stands ready to do so for at least another five or six generations of processors. Even in today's most expensive PC, a Pentium processor accounts for less than $100 of the retail price. Moore's Law (for slightly different reasons) also applies to other aspects of digital technology, including computer memory and data storage devices. Telecommunications bandwidth, the speed at which data can be moved through the phone network, is experiencing similar improvements thanks to high-speed fiber-optic cable, satellites, and wireless communications technologies, all of which can be used on the same network.

Everything having to do with digital technology gets relentlessly faster, smaller, and cheaper. The computer in your cellular phone has more power than all the computers used during World War II combined. In 1980, a gigabyte of storage cost several hundred thousand dollars and took up the better part of a room. It now fits on a credit-card sized device that costs less than $200. Telecommunications technology, with the help of deregulation, has already collapsed the price of long distance calls in the United States. Software applications that had previously proven uneconomical—multimedia interfaces, expert systems, groupware—suddenly have the wherewithal to enter the market, taking advantage of low-cost computing power, memory, and storage to perform complex tasks.

In consumer markets the price decrease is tangible. Personal computers debuted at about $3,000 in 1985; they are now available for less than $1,000 and are, at the same time, several orders of magnitude more powerful. There are now 200 million computers in the world. Go even smaller, and you'll discover that there are probably more than 100 microprocessors in your home. As Moore's Law advances, it costs almost nothing to stick a simple computer in your coffee maker to let you program the time and strength of your morning brew. There are 6 billion such chips embedded inside other devices.

In the future, all the devices you use from day to day will have chips. The chips will be linked, perhaps over the very wires that bring in power, and will communicate both inside and outside your home. The power company will monitor usage and performance on a second-by-second basis, allowing it to balance loads, buy and sell excess power, and provide you and other businesses with valuable data. What starts out as a clever feature of your coffee maker just might create an entirely new industry model for public utilities.

1.6: Metcalfe’s Useful Equation

Moore's Law goes a long way toward explaining why the digital age is increasingly populated by killer apps. What it doesn't tell you is why these applications seem to spread as quickly as they do. To understand that, you need Metcalfe's Law. Consider the telephone. How useful is it? Your answer depends entirely on how many other telephones there are and on how easily they can be interconnected. One phone is useless, a few phones have limited value. A million phones create a vast network, and a network is something, as the Communist governments of the former Soviet Union learned to their dismay, with tremendous power.

Robert Metcalfe, founder of 3Com Corporation and the designer of the robust Ethernet protocol for computer networks, observed that new technologies are valuable only if many people use them. Specifically, the usefulness, or utility, of a network equals the square of the number of users, a function known as Metcalfe's Law. (See Figure 1.2) The more people who use your software, your network, your standard, your game, or your book, the more valuable it becomes, and the more new users it will attract, increasing both its utility and the speed of its adoption by still more users. If you and I can call only each other, to return to the telephone example, a phone is of little value. But if we can call nearly everyone else in the world, it becomes irresistible.

The diagram of Metcalfe's Law in Figure 1.2 shows a magical point of inflection, the knee of the curve, at which a technology reaches critical mass. After that point, its value increases exponentially. How quickly a new application hits the knee depends on how much it costs new users to get access to the network (for instance, a telephone and monthly connection charges), since buyers will weigh this cost against the usefulness of the technology at the time of purchase. The lower the initial price, the more quickly critical mass is reached. And ironically, once critical mass is reached, the developer can in theory charge subsequent users more, because the network effect increases the application's value.

For the phone system, or the power system, the initial investment in network infrastructure was high, which kept the price of access high. In the case of railroads and telephones, initial developers failed to appreciate the value of interconnection (in essence, the power of the Metcalfe curve). Railroads struggled with multiple gauges of track, which limited connections between systems, until the late 1880s. It didn't even occur to telephone companies to put a dial on the phone until 1931, even though the high cost of employing people as switchboard operators limited the reach of the network. In the predigital age, Metcalfe's Law could take decades to unleash network power.

Developers of today's digital technology are conscious of Metcalfe's Law, and they are developing counterintuitive rules necessary to optimize and exploit it. The most dramatic demonstration of Metcalfe's Law during the digital age has been the explosion in the early 1990s of the Internet, a network of computers and a set of standards that makes it easy for computers to share data. The Internet had existed in various forms for many years, but reached critical mass in 1993. (See Figure 1.3) From there, true to form, the Internet became the "it" technology, attracting not only users but billions of investment dollars, regular cover stories in popular magazines, and even Hollywood movie makers.

Computer hardware, software, and networking companies had been building up their user bases for decades with closed, proprietary networking standards like IBM's Systems Network Architecture and its PC token ring network, document interchange, and hundreds of subsidiary "IBM solutions"—solutions, that is, for IBM. The Internet, on the other hand, has always been based on open, public standards, allowing it to grow faster despite its lack of a marketing function or, indeed, any organization whatsoever. The Internet became the dominant global computing network it now is by being the first to reach the knee in Metcalfe's curve, and the impact of that victory will be played out in the information technology industry for years to come.

The notion that an open system—a system that gladly gives all its secrets away—could humble a giant like IBM seems the stuff of fairy tales. Meet Marc Andreessen, who was an undergraduate at the University of Illinois in the early 1990s when the World Wide Web, a new set of open standards for sending and receiving multimedia communications over the Internet, was in its infancy. In an effort to exploit these standards Andreessen wrote Mosaic, a program that allows users to browse through the various Web sites that were being created. To get maximum exposure for Mosaic, Andreessen lowered the access cost—that is, the price of the software—to zero. Even when former Silicon Graphics founder James Clark stole Andreessen and his team away to start Netscape Corporation, the operating model didn't change. Netscape Navigator, the company's rapidly evolving browser, is still being given away.

The result? Netscape captured 80 percent of the browser market within months of its first product release in 1995 by giving away millions of copies of its software. Unlike telephones, giving away Navigator costs little in real dollars. Thanks to the Internet itself, users simply download the software, using their own phone connection, their own machines, and their own electricity. The marginal cost of each "copy" of Navigator that Netscape has given away is not effectively zero, it is actually zero.

Eighty percent of a market for a free product doesn't sound like much of an achievement, but when Netscape stock debuted in 1995, it went from an initial asking price of $14 a share to $150 in a matter of days, giving the company a market valuation of more than $3 billion dollars. The rapid proliferation of Navigator encouraged faster development of Web sites, which in turn led to greater demand for Navigator. The company now derives revenues from subsidiary goods and services, such as advertisements on its own Web site and information broadcasting services, software tools for building corporate "intranets" (an intranet is a network similar to the Internet that operates only within a single organization's defined boundaries), and products that allow developers to build and manage the Web sites that Netscape's "free" users are visiting. Software giant Microsoft arrived late to the market for browser software and the related services it makes possible, but used its own market power (illegally, according to the U.S. Justice Department) to cut into Netscape's dominance in 1997. Still, Netscape reported more than $500 million in revenue for that year.

Navigator hit the Metcalfe curve at warp speed, with critical mass and the predictable explosion occurring not in years but in months. In 1994, when we first demonstrated Mosaic to clients, the World Wide Web was an experiment. By 1997, nearly every network television advertisement included a Web address. What's more, entire industries had sprung up and matured by devoting themselves to creating supplemental software, including audio, video, and three-dimensional modeling tools, as well as services for developing, hosting, and managing Web sites for corporations. The Internet itself is their low-cost channel for advertising, product development, manufacturing, and distribution.

1.7: The Law of Disruption, or Second-order Effects

This is not the world of the future but the one we already live in. As Moore's Law continues its relentless journey into the realm of the smaller, cheaper, and faster, the acceleration of new technology introductions will increase. As it does, Metcalfe's Law is there to spread them around. As Nicholas Negroponte wrote famously in 1995 in his book Being Digital, these two powerful principles are driving the transformation of the world from one made up of atoms to one made up of bits. Games, as well as most other forms of entertainment, much of the world's money supply, nearly everything published, corporate knowledge, and most forms of communication are all becoming digital—just to name a few. The digital revolution is scooping up all the information-intensive processes you can think of, and several you can't. This migration of activities, functions, and people from the world of the physical to the world of the digital has created a new environment, which its inhabitants know as cyberspace. "Computing," as Negroponte says in Being Digital, "is not about computers anymore. It is about living."

"Atoms to bits" is the second-order effect of the killer apps in the digital age, their sudden and dramatic disruption of the political, social, and economic system. It's already begun, and it will make feudalism look mild by comparison. We refer to these second-order effects, the combination of Moore's Law and Metcalfe's Law, as the Law of Disruption. (See Figure 1.4) It can be simply stated as follows: Social, political, and economic systems change incrementally, but technology changes exponentially.

The systems that make up human civilization, including commercial systems, change over time, but they do so on an incremental basis. Law, for example, evolves to encompass the unique features of new technologies, but it does so at an agonizingly slow pace, as anyone who has studied railroad, banking, or telecommunications law can attest. Technology change instead follows the track of Metcalfe's curve. Once there is a critical mass of users, the rate of change—what you might think of as the disruption index—accelerates exponentially. It is in the growing chasm between the different rates of change that secondary effects occur.

Technology change initially affects technology, in other words, but once critical mass is reached, the disruption takes place in other, unrelated systems. Television redefines the relationships of family and community; cloning challenges basic understandings and definitions of character and personhood. Electronic commerce has caught national and local governments completely off guard, and while they scamper to figure out how to apply whomever's law, the technology continues to evolve into forms less and less analogous to enterprises with which they are familiar. These are the types of changes that historian Thomas Kuhn, in a much more limited context, first referred to in 1962 as paradigm shifts, discoveries so fundamental that they knock out the basic pillars of universally held beliefs, requiring that brand new structures be built to explain them. In the case of digital technology, the new structure is called cyberspace.

Cyberspace is not a solid structure located in a certain place, but a collection of digital technologies that together create an increasingly believable illusion of place. The more activities the environment can support, the faster organizations and individuals alike must adapt to its atmosphere, its gravity, and its physics. Since corporations are themselves imaginary creatures, doing business in a virtual location requires relatively little in the way of adaptation. But for human beings cyberspace is disorienting. It will take some time to get used to it. The vertigo that nearly everyone—politicians, CEOs, homemakers, and grandparents—first experiences there is the Law of Disruption in action. It is as if one were physically making the leap to the top of Metcalfe's curve.

1.8: The Internet as Primordial Soup

Many of our examples of killer apps and digital strategies will come from or be intimately connected with the Internet. This is because the Internet is the closest environment we have today to the world of bits, and it is the place where the missing components, the new technologies, and the new business models are being introduced, tested, and observed. If cyberspace is the world of tomorrow, think of the Internet as a primitive rendering of that world, the primordial soup from which it is emerging.

The Internet began as a collection of research and defense-related networks created under the auspices of the Department of Defense (the U.S. government no longer operates the Internet or provides significant funding for it). The goal of the Department of Defense was to create a computer network that would be indestructible, even in the event of nuclear war, supporting continued command and control activity by the government and the military. Hardly the beginnings of a commercial technology that now threatens to take over the world as we know it.

The key to the Internet's growth, however, has been precisely that design principle of uninterruptibility. To make a network that could not be broken, the designers avoided making any one connection vital. Messages, data files, pictures of your grandchildren—anything being sent over the Net is broken into small packets and routed dynamically from one computer to another, stopping along the way at a number of intermediate relay computers. New York City is wiped out? No problem, the packets just detour around it. An individual link is down? That's OK, too, since there are many redundant channels. The Internet is completely decentralized, and there is no hierarchy among the various connected computers that make up the network. But lack of hierarchy does not mean anarchy: fish swim together, after all, without a chain of command.

The Internet's openness allows it to take optimal advantage of Moore's Law and Metcalfe's Law. It's open to everything, and inside its networks there is a fiercely competitive marketplace of ideas, where new standards, products, and information can be whipped around the world and back in a greatly condensed time frame. It is a network that is constantly being rebuilt, taking advantage of every new advance in digital technology, from high-bandwidth communications (the network itself is a wild combination of fiber, cable, wire, wireless, satellite, cellular, and several other communications media), multimedia user interfaces, global computing architectures, and increasingly powerful software for sharing information. Product developers now refer to "Internet Years," roughly equivalent to dog years. A company that is one Internet year old acts like one that has been around for seven years.

The Internet, as we will refer to it in the rest of this book, is the best conduit through which Moore's Law and Metcalfe's Law are operating together. In this sense it has become, and will remain, the most potent test laboratory available for new digital technologies. As we'll discuss in Part 2, the Internet is also the most important crucible in which to test new strategies and operating principles that has come along since the open market.

1.9: Killer Apps, Take Two

We began this chapter by demonstrating the disruptive power of killer apps—innovative uses of technology, like BP's kiosk and Charles Martel's stirrup—that suddenly destroy the equilibrium of what appeared to be stable systems of commerce and society. To explain the sudden and alarming appearance of killer apps in the digital age, we introduced Moore's Law and Metcalfe's Law, which together account for much of the confusion, a confusion we described as the Law of Disruption.

We have now come full circle. Killer apps are manifestations of the Law of Disruption, the visible catastrophes that punctuate the invisible workings of Moore's Law and Metcalfe's Law, much as earthquakes and volcanoes are the manifestations of complex interactions between geological forces beneath the surface of the Earth. As the rate of technological change increases relative to social rates of change, the incidence of killer apps increases.

Killer apps are the collisions between exponential technology adoption and systems that prefer to change in even, incremental measures. How disruptive they are depends on where in the technology curve they are introduced. E-mail will probably take less time to kill the post office than automobiles took to kill the horse and buggy. As Moore's Law and Metcalfe's Law increase the speed with which the digital killer apps are released, the mean time to death decreases.

But what do killer apps have to do with your business strategy, or, more particularly, with the development of what we referred to as digital strategy? Why does it seem that in the last few years digital technologies have been focusing their disruptive power on your industry, your markets, and your organizational structure? To answer these questions, we have to travel back in time again. Not to the Middle Ages, but to 1937.