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 / Second Quarter 2000 / Issue 19(originally published by Booz & Company)


Jay Walker: The Thought Leader Interview

We figured out how the seller can have his cake and eat it, too. By injecting uncertainty into the process, the buyer wouldn't know exactly what he was getting, but would know enough of what he was getting that his price would be very attractive — as long as he could name it. He could name his own elasticity for uncertainty. The seller, on the other hand, could say, "Well, if they don't know it's me, I can now sell. Because I can tell the people on the rate card, 'Your price includes certainty. These other people are buying uncertainty.'"

S+B: Starting with the airlines as your suppliers made sense, because they have a history with yield management.

WALKER: The airline industry understood it better. We helped them — and others — broaden their yield curve.

S+B: Given that airlines have been operating in this way for years, in what way does this describe a dramatically different approach to doing business?

WALKER: Here's the difference. In the Information Economy, the information component of the economic activity is handled separately from the physical component. In the Industrial Economy, they're inextricably merged. So when you used to print the price on the can of coffee, the knowledge of price was printed on the product; it could not move free. The retailer couldn't adjust it, nobody could move it. In the Information Economy, the information is actually detached from the product and it's treated as a separate element: managed separately, manipulated separately. It becomes its own separate source of value.

S+B: Give me an example of a company where information and product are decoupled.

WALKER: Inasmuch as Federal Express delivers packages physically, it is an industrial company. Inasmuch as FedEx allows you to track the package, know where it is, know your discount, know your billing, can tell you where it's located, then it's an information company. What is worth more to you: the information layer of the FedEx process or the industrial layer? Obviously I want FedEx to industrially deliver my product, so I have an industrial component I pay for. But I pay more for FedEx than UPS service...

S+B: Because of the information component in it.

WALKER: Because of the information value-add. And since the information is typically much higher margin than the industrial element, and because information can be scaled so much faster, the real profit for FedEx is in the information layer and not the industrial layer. The difference between the Knowledge Economy and the Industrial Economy has to do with the detaching of such information. Once you've detached the information, everything changes. Those are the types of ideas we are patenting, and turning into businesses.

S+B: At a luncheon on patent reform at this year's World Economic Forum in Davos, you said the Knowledge Economy will transform the patent system, update it while retaining its advantages.

WALKER: Patents' Industrial Age length in the Information Age appears to be one thing that needs to change within a total package of patent reform. Industrial systems are linked. They were all created as part of the same recipe. The trade laws, the consumer protection laws, the notion of competition — these things are all industrial creatures. They've grown up for the last 100 or 200 years, so what we're looking at today is a very highly evolved set of checks and balances, and systems of decreasing relevance.

Consider capital formation time, which is embedded in the patent system. In the Industrial Economy, it took a great deal of time to amass the capital to finance a business, so patents were granted for 17 years, to cover that period. But the Internet proved that capital formation doesn't take years and years. Capital formation is not a problem, because once you can demonstrate your scalability, capital chases you.

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