Sunday, October 9, 2011

The Second Economy

I've just read a fascinating article in McKinsey Quaretly, describing the Second Economy.  The author considers the 'underground' economy acting underneath the economy we see above ground, an economy that consists of hundreds of machines which go into co-ordinated action when we begin a transaction.   He uses a clever example of checking in at an airport kiosk which sets off a string of interactions with other machines, from those which predict total check-ins and adjust load placement on the airline, to updating frequent flyer programs, to checking security lists - probably numbering in the hundreds. And this computerized neural network is doing tasks that used to be done in the physical world by humans.

What I loved about this article was his analogy of this underground economy to the root system that links aspen trees.  (I hadn't known that a stand of aspens would all share an underground root system.  I will go and look up more about this).  What an elegant analogy.

I often use another forest analogy to explain seemingly sudden explosions in innovation adoption.  When a forest fire is raging through a forest, it will sometimes appear to have faltered, only to have trees a short distance away burst into flame.  The fire had been carried forward through the underground root system of the trees.  (At least that's what somebody told me ages ago).  I think of innovation like that sometimes.  You may have heard of the novelist Gibson's remark "The future is here; it's just unevenly distributed".   So an innovative technology may pop up in one place and seem to lie dormant for a long time, only to flare up slightly differently.  For those who haven't been watching closely, this new flare-up looks like the start date for the technology, but really the innovation has been incubating underground for a long time.

CHeck out the full article at I've just read a fascinating article in McKinsey Quaretly, describing the Second Economy.  The author considers the 'underground' economy acting underneath the economy we see above ground, an economy that consists of hundreds of machines which go into co-ordinated action when we begin a transaction.   He uses a clever example of checking in at an airport kiosk which sets off a string of interactions with other machines, from those which predict total check-ins and adjust load placement on the airline, to updating frequent flyer programs, to checking security lists - probably numbering in the hundreds.

What I loved about this article was his analogy of this underground economy to the root system that links aspen trees.  (I hadn't known that a stand of aspens would all share an underground root system.  I will go and look up more about this).  What an elegant analogy.

I often use another forest analogy to explain seemingly sudden explosions in innovation adoption.  When a forest fire is raging through a forest, it will sometimes appear to have faltered, only to have trees a short distance away burst into flame.  The fire had been carried forward through the underground root system of the trees.  (At least that's what somebody told me ages ago).  I think of innovation like that sometimes.  You may have heard of the novelist Gibson's remark "The future is here; it's just unevenly distributed".   So an innovative technology may pop up in one place and seem to lie dormant for a long time, only to flare up slightly differently.  For those who haven't been watching closely, this new flare-up looks like the start date for the technology, but really the innovation has been incubating underground for a long time.

In this article, Brian Arthur argues that by 2025, this digital second economy could be as big as the physical one.

Check out the full article at the McKinsey Quarterly site.

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