platforms, markets & bytes
the economic landscape of the sixth paradigm (?)
eComm europe 2009
28-30 october
sean park, partner
nauiokas | park llp
“ A technological revolution can be defined as a powerful and highly visible cluster of new and dynamic technologies, products and industries, capable of bringing about an upheaval in the whole fabric of the economy and of propelling a long-term upsurge of development.  It is a strongly interrelated constellation of technical innovations, generally including an important all-pervasive low-cost input, often a source of energy, sometimes a crucial material, plus significant new products and processes and a new infrastructure.  The latter usually changes the frontier in speed and reliability of transportation and communications, while drastically reducing their cost.”
“...each of these revolutions is accompanied by a set of ‘best-practice’ principles, in the form of a techno-economic paradigm, which breaks the existing organizational habits in technology, the economy, management and social institutions.” 
carlota perez:  technological revolutions and financial capital (2003)
cloud computing
exchange ubiquity
digitization
(symbolic starting point (?): 
 launch of S3 and EC2 in 2006)
EaaS
ISIN:  An International Securities Identification Number (ISIN) uniquely identifies a security. Its structure is defined in ISO 6166. Securities for which ISINs are issued include bonds, commercial paper, equities and warrants. The ISIN code is a 12-character alpha-numerical code that does not contain information characterizing financial instruments but serves for uniform identification of a security at trading and settlement.
ISBN / ASIN:  The International Standard Book Number (ISBN) is a unique numeric commercial book identifier.  The Amazon Standard Identification Number (ASIN) is a unique identification number assigned by Amazon.com and its partners for product identification within the Amazon.com organization.  Each product sold on Amazon.com is given a unique ASIN. For books with 10-digit ISBN, the ASIN and the ISBN are the same. Books without an ISBN and other products are also assigned ASINs. 
ZSIN(?):  Zoopla Standard Identification Number - a unique identification number assigned by Zoopla.co.uk for residential property identification...
VoIP: The basic steps involved in originating an Internet telephone call are conversion of the analog voice signal to digital format and compression/translation of the signal into Internet protocol (IP) packets for transmission over the Internet; the process is reversed at the receiving end.
so what will drive the sixth paradigm?
marketplaces in everything
 ...the concept of a market is any structure that allows buyers and sellers to exchange any type of goods, services and information...
...a (computing) platform is a framework on which applications may be run...
...digital information exists as one of two digits, either 0 or 1. These are known as bits (a contraction of binary digits) and the sequences of 0s and 1s that constitute information are called bytes...
There are a number of transaction costs to using the market; the cost of obtaining a good or service via the market is actually more than just the price of the good.
Other costs, including search and information costs, bargaining costs, keeping trade secrets, and policing and enforcement costs, can all potentially add to the cost of procuring something with a firm. 
This suggests that firms will arise when they can arrange to produce what they need internally and somehow avoid these costs.
There is a natural limit to what can be produced internally, however. Coase notices "decreasing returns to the entrepreneur function", including increasing overhead costs and increasing propensity for an overwhelmed manager to make mistakes in resource allocation. This is a countervailing cost to the use of the firm.
"...(complex adaptive systems) consist of a hierarchy of components, such that, at any level of the hierarchy, the rates of interaction within components at that level of the hierarchy, the rates of interaction at that level are much higher than the rates of interaction between different components.  Systems with this property are called nearly decomposable (ND).  The explanation for the ubiquity of the ND property is that under the usual conditions of natural selection, ND systems will increase in fitness at a much faster rate than systems that do not possess the ND property."

...at any level of complexity, ND systems will evolve much faster than systems of comparable complexity that are not ND...

...architectures that are not ND will simply be unable to compete successfully in rate of adaptation, hence ultimately in fitness, with ND architectures."
{
}
In a world where everything can be expressed as 0s and 1s, are the traditional ways of defining sectors and industries (as verticals) still relevant?
What new business models and industry structures are likely to emerge?
And what’s the difference between a bank and a telecom company really?
bytes
platforms
markets
physical platform
digital platform
services
applications
"traditional" industry / corporate structure
"new optimal" industry / corporate structure (?)
Tyrannosaurus Telecom
nothing wrong with "dumb" pipes
real economies of scale
cashflow driven capital structures

Shell has a gas field in Holland that has just come online. It is the most automated gas field ever built and has a spin-up time of 5-10 minutes. Push a button - 5 minutes later you are delivering a quanta of contracted gas. This spin-up time is faster than the spin-up time of most gas-fired peaker plants. 

Now, these gas molecules are sold almost exlusively to power generators. Thus the molecules are actually physically "converted" to electrons. The electrons are then carried over wires and sold to end users, that use electronic payments from their bank carried over telco wires (or the same wires if using broadband over powerlines) which is processed by the power company and then pays Shell. And of course each step of the physical, telco and financial supply chain is monitored and logged and increasingly meta-data'ed. 
Bank Brontosaurus
vertically integrated
}
{
The process stack comparison:
1. Front Office: both manage millions of realtime events be it prices, orders, trades, users or telephone calls, customers (maybe not my company...)
2. On-line customer account management - with attendent compliance issues, KYC, URU and identification/authentication requirements and services, account management
3. On-line payments - (and also offline payments), account funding, credit and debtor issues.
4. On-line security and customer confidentiality issues (PCI for credit card issues), fraud detection/prevention.
5. Customer statements - online (maybe multi-language)
6. Customer support - realtime chat, call centres, technical support.
eMarketing - SEO, PPS, google ranking targets, sales lead management etc
Messaging & Company
Trust Inc.
Identity Ltd.
api
api
api
horizontal integration
who is the bank?
who is the telco?
where is the value created?
isn't it all just FX?
a substrate for an ecosystem of services
selling trust, creating markets
economies of scale
"well built developer platforms are the future of every industry" -ReadWriteWeb


edge innovation, rapid adaptation
dis-economies of complexity
low capital intensity
"Multisided platforms cater to two or more distinct groups of customers.  Members of at least one customer group need members of the other group for a variety of reasons.  Platforms help these customers get together in a variety of ways and thereby create value that the customers could not readily obtain otherwise."
David S. Evans, Andrei Hagiu and Richard Schmalensee
Amazon / AWS
Apple (90,000+ apps, 20,000+ publishers)
Facebook (350,000+ apps, 250 with 1+ million users)
Microsoft (3+ million MSDN members)

so where are the AWS' of banking? of telecoms?
where is the apps store for finance?
we need to shake up the stack
Acknowledgements:
Tony Kehoe
Rod Hall
Cathleen Rittereiser
Richard 'Tres' Ward
Chris Swan
Andrew Walkingshaw
Alexis Richardson
JP Rangaswami
thank you
BaaS
VaaS
"The difference between bank messaging (transactions, queues) and telcos (conversations, streams) is disappearing."
- Alexis Richardson
www.nauiokaspark.com  /  www.parkparadigm.com
@nauiokaspark