Disintermediation is defined by Wikipedia (which disintermediated paper-based encyclopedias) as “The term was originally applied to the banking industry in about 1967: disintermediation referred to consumers investing directly in securities rather than leaving their money in savings accounts, then later to borrowers going to the capital markets rather than to banks.” The Internet has had a strong impact in disintermediating several industries, with Amazon disintermediating book stores and later retailers in general. iTunes disintermediating music stores and record companies, Netflix disintermediating Blockbuster and other video chains, CraigsList disintermediating classified ads in most newspapers. If we think about it we can see that the Internet started a revolution of disintermediation.

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In our 17 years focusing on collaboration technologies we (at CS) have also seen that collaboration technologies also have a disintermediating influence.

To try to put this into perspective I have identified three waves or three effects of Internet technology, which I will call the first, second and third order effects.

In August of 1991, Tom Malone (a professor at MIT) and actually the person who wrote the forward to my first book on GroupWare in 1995 (Prentice-Hall), wrote an article with John Rockart on Computers, Networks and the Corporation.”

“This article, written for a general audience, discusses the effects that information technologies are likely to have on corporate structure and management approaches. By dramatically reducing the costs of coordination and increasing speed and quality, these new technologies will enable people to coordinate more effectively, to do much more coordination, and to form new, coordination-intensive business structures.”

In the article they went on to explain the first, second and third order effects of technology.

“To understand what is likely to happen as information technology improves and its costs decline, consider an analogy with a different technology: transportation.

Then, as people used more and more transportation, a third-order effect eventually occurred: the emergence of new "transportation-intensive" social and economic structures. These structures, such as suburbs and shopping malls, would not have been possible without the wide availability of cheap and convenient transportation.”

What Caused the First Internet Bubble?

In looking at the Internet and the role of collaboration technologies, we also are looking at first second and third order effects. Like Dr. Malone, only 15 years later, we have been able to see that the major effects of Internet technology are:

1. Publishing
2. Connection
3. Community

In the first order effect people took ads, brochures, articles, most anything they had written and put it up on the web. Between 1995 and 2000 that is mostly what we saw, with an emphasis on the creation of web sites, and portals for the aggregation and display of content. The big technologies that came out of this were search (Google) and portals like Yahoo! and
MSN.

This effect caused the first Internet bubble, and was a virtual land rush. The metrics of measurement at that time were “eyeballs” which unfortunately did not translate into revenue, and so in 2000 the bubble popped.

However, the disintermediation of traditional methods of information or content distribution is still going on. Travel agencies, real estate, News papers, radio and TV as well as other industries are being rapidly disintermediated by formerly hidden content now becoming transparent to the consumer or business.

Connection – the Second Order Effect

Around the turn of the century the second order effect was starting to happen, and was setting up for the second Internet bubble which we are in the midst of today. What people discovered what that the Internet was great for content (the focus of the first order effect) but that it was also great for connection, especially to other people for discussion about content. This gave rise to blogs, wiki’s, online dating, IM (buddy lists), SMS, and many other technologies and products all focused on helping us connect with other people online. This effect is not as mature, but we are already seeing it through sites like: Jeteye, Flickr and YouTube, where people can post, share and comment on all types of content.

YouTube was recently purchased by Google for $1.65 billion, Flickr acquired by Yahoo, and MySpace bought by NewsCorp a few months ago for over a half a billion dollars.

Today we live in (a smaller and more prudent) bubble, with increasing VC investment in companies that help people connect around content on the Internet. But the investors in the first bubble learned a hard lesson and they are not willing to take such great risks, so today, rather then just presenting “slideware” to get funded, you need to actually have built the or service and have it up and running; ideally, with customers or subscribers and already producing revenue.

Virtual Social Structures – The Third Order Effect

Because many of our clients are vendors of collaboration technologies, they have been directly effected by the second order effect, and many of them have asked us, "what's next?" It was natural for me to think about what the third order effect might be. My logic goes like this: if content was first, and then people connecting and talking about content was second, then people interacting with people (yes, content is still important)is probably the third order effect. As a social scientist (with a technical background) I know that when people start to interact, especially on an ongoing basis, they start to form social structures.

It is these third order effect (collaborative) technologies that will make it easy for people to form and support these virtual social structures (or communities and social networks). The third order effect is just starting to happen and we believe it will cause a third (and even more prudent) economic bubble towards the end of the decade as these technologies start to get more popular. There are an enormous number of online Social Network and Community tools available now:

Q2Learning,
iCohere,
Affinity Circles,
GroupMembersOnly,
Google Groups,
Yahoo Groups,
Social Text,

and the list goes on…(I will be blogging about a new and interesting one that will be announced on Monday). Many of these are Web 2.0 companies and embrace the principles of transparency, ease-of-use, agile programming, and quick to market.

Responding to Second and Third Order Effects

One of conferences I am on the advisory board of (Collaboration Technologies Conferernce) is even looking at shifting the focus of the conference from just collaboration technologies to something called Enterprise 2.0, which is acknowledging the shift the role collaboration technologies is having both on the Internet through Web 2.0 technologies and also the effect they are having on different organizations.

In working with many online community providers many of them are trying to crack the code and take advantage of this third order effect, but no one yet has gotten the right mix of features, ease-of-use, and compelling content to become a dominant player. What needs to happen is someone needs to find a way to monitize communities the way Google got adwords to monetize search.

Right now most of the players in this space are smaller more innovative companies, many of which are start-ups. These companies have a small window of opportunity to make their mark and either become a major player or get bought up by one of the larger software vendors. I do believe that many of the larger players in the collaboration space (Microsoft, WebEx, Citrix, IBM, Adobe, etc.) will begin to see this third order effect as an opportunity and start to shift their product focus to support online community over the next year or two.

If you are a vendor in this space, and thinking about some of the issues raised in this blog, we are more than glad to talk with you about what we see, and help you with strategies to take advantage of the new Internet bubble that is forming today!