Is the Information Revolution Dead? Class 1: Intro and Course Overview
W. Brian Arthur Case Summary by: Matthew Yonghwi Kim
Main Takeaways
Information revolution seems like it has come and gone but it’s far from over. From a historical perspective, information revolution displays uncanny resemblance to railway and canal revolution, due to a characteristic they all share; they are all connection technologies. These revolutions occur in 3 stages:
1) speculative exuberance
2) followed by a crash
3) followed by a strong buildout period
Information revolution has seen the first two stages. The author argues that the 3rd stage has yet to come. In order for this revolution to fully arrive, the technologies need to adapt themselves to us by becoming comfortable and easy to use, i.e., provide an amenity.
More in-depth Summary
I. Introduction : Is information revolution dead?
Information revolution reached its peak in the midst of frenzied speculation until the bubble burst. In historical context, it’s merely one in a series of technological revolutions since mid-18th century.
II. Technological Revolution
Schumpeter stated that technology arrives in clusters (think electrification leading to dynamos, generators, transformers, etc.). These clusters, if they are important, define an era. They eventually change the way business is done. These technological revolutions follow a pattern of speculative exuberance, followed by crash, followed by a strong buildout period. If this pattern holds true, information revolution is at the end of stage 2, and the buildout – the golden age - has yet to come.
III. Railway Revolution
Initially, railway carriages were drawn by horses. Then locomotives with steam engines came about. Technical pioneers began to crowd in, a host of improvements followed, and a decade and a half of frenzied technical competition was under way. All of the sudden, investing in railways became the hottest craze. To give you some idea, here are a few quotes. “The more worthless the article, the greater seemed the struggle to attain it.” “Schemes for direct lines connecting little-known towns to other little-known towns became a craze, launched more with an eye to garnering investment than actual profits.”
Then the crash happened. Railway shares plummeted, bankruptcies followed, banks were forced to close. However, after the crash, years of buildout began, characterized by seriousness and hard work. Before the crash, Britain possessed 2148 miles of railway. 65 years later, it had 21,000. Railways became the engine of the economy in Britain.
IV. Connecting Technologies
Not all revolutions exhibit the aforementioned pattern. A notable similarity among railways, canals, and the internet – those that do exhibit the pattern - is that they are connecting technologies, giving way to natural monopolies. Only one line can profitably connect two different places and competing lines will lose. This brings on a race to be the first win that line, resulting in an investment frenzy and overcapacity.
V. Arguments for/against Continued Information Revolution
Internet has had its initial successes, the IPO’s, then the crash. But an eerie resemblance to events of 160 years ago doesn’t guarantee that the information revolution is about to enter a golden age.
Some say that information revolution has been around long enough to have had its chance. Enabling technologies have been around since the 1950’s. However, history tells us that a considerable delay of several decades lies between the enabling technology and its heyday. (ex. Steam engine. Developed in the 1760s, not prevalent until 1820’s). Why the slow adoption?
The author believes that many arrangements, many improvements, and many organizational changes need to be put in place before the new technology cluster can become widespread. The revolution doesn’t fully arrive until we structure our activities – our organizations and business methods – around its technologies, and these technologies need to adapt to us by becoming comfortable and easy to use. With the railways, it became faster, cheaper and safer – better engines, better brakes, switches, etc. Businesses relocated near railways rather than near rivers. Shipping methods adapted to railways as well.
With any revolution, business organizations need to do more than adapt but redefine and re-architect itself. It took 40 years for electricity to find its way into factories. As for information technologies, technologies are available but what’s needed are learning and investment. Already, there is strong evidence that firms are tearing down old structures to adapt to the new technology. It also helps that information technology prices fall constantly.
VI. Conclusion
For real widespread use, technology must provide amenity, to a point that it disappears, just as you don’t consider your car a technology. The web’s interface is still unwieldy to many, unreliable, frustrating and slow. It took 50 years for cars to reach amenity through development of paved roads, reliable brakes, ignition systems, safe tires, and thousands of other advances. It is much more difficult to predict this timeframe for information technology due to ever morphing nature of information technology. Thus, we can expect more innovation in this buildout phase than with previous revolutions.
Case Discussion / Digest Questions
Professor Dewan posed this question in class, whether you agree with the parallel that this article presents. Can information revolution really be compared to railway revolution just because they are both connecting technologies? Simple put, the answer is NO. Information revolution, especially in regards to the internet, is not just about connecting technologies. What’s more important is how that technology is used. We discussed how computers themselves do not provide any competitive advantages but it’s what you do with the computer, how you implement it, that makes all the difference. Firms using the railways, the canals, they all benefit in the same way. But we’ve seen firms, using the same computer boxes, same networks, etc. come to vastly different results.
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