The World Is Flat (11 page)

Henry Schacht, a veteran industrialist now with E. M. Warburg, Pincus & Co., was brought in by Lucent, the successor of Western Electric, to help manage it through this crazy period. He recalled the atmosphere: “The telecom deregulation of 1996 was hugely important. It allowed competitive local exchange carriers to build their own capacities and sell in competition with each other and with the Baby Bells. These new telecoms went to companies like Global Crossing and had them install fiber networks for them so they could compete at the transport level with AT&T and MCI, particularly on overseas traffic... Everyone thought this was a new world, and it would never stop. [You had] competitive firms using free capital, and everyone thought the pie would expand infinitely. So [each company said,] 'I will put my fiber down before you do, and I will get a bigger share than you.' It was supposed to be just a vertical growth line, straight up, and we each thought we would get our share, so everybody built to the max projections and assumed that they would get their share.”

It turned out that while business-to-business and e-commerce developed as projected, and a lot of Web sites that no one anticipated exploded-like eBay, Amazon, and Google-they still devoured only a fraction of the capacity that was being made available. So when the dotcom bust came along, there was just way too much fiber-optic cable out there. Long-distance phone rates went from $2 a minute to 100. And the transmission of data was virtually free. “The telecom industry has invested itself right out of a business,” Mike McCue, chief operations officer of Tellme Networks, a voice-activated Internet service, told CNET News.com in June 2001. “They've laid so much fiber in the ground that they've basically commoditized themselves. They are going to get into massive price wars with everyone and it's going to be a disaster.”

It was a disaster for many of the companies and their investors (Global Crossing filed for bankruptcy in January 2002, with $12.4 billion in debt), but it turned out to be a great boon for consumers. Just as the national highway system that was built in the 1950s flattened the United States, broke down regional differences, and made it so much easier for companies to relocate in lower-wage regions, like the South, because it had become so much easier to move people and goods long distances, so the laying of global fiber highways flattened the developed world. It helped to break down global regionalism, create a more seamless global commercial network, and made it simple and almost free to move digitized labor-service jobs and knowledge work-to lower-cost countries.

(It should be noted, though, that those fiber highways in America tended to stop at the last mile-before connecting to households. While a huge amount of long-distance fiber cable was laid to connect India and America, virtually none of these new U.S. telecom companies laid any substantial new local loop infrastructure, due to a failure of the 1996 telecom deregulation act to permit real competition in the local loop between the cable companies and the telephone companies. Where the local broadband did get installed was in office buildings, which were already pretty well served by the old companies. So this pushed prices down for businesses-and for Indians who wanted to get online from Bangalore to do business with those businesses-but it didn't create the sort of competition that could bring cheap broadband capability to the American masses in their homes. That has started happening only more recently.)

The broad overinvestment in fiber cable is a gift that keeps on giving, thanks to the unique nature of fiber optics. Unlike other forms of Internet overinvestment, it was permanent: Once the fiber cables were laid, no one was going to dig them up and thereby eliminate the overcapacity. So when the telecom companies went bankrupt, the banks took them over and then sold their fiber cables for ten cents on the dollar to new companies, which continued to operate them, which they could do profitably, having bought them in a fire sale. But the way fiber cable works is that each cable has multiple strands of fiber in it with a potential capacity to transmit many terabits of data per second on each strand. When these fiber cables were originally laid, the optical switches-the transmitters and receivers-at each end of them could not take full advantage of the fiber's full capacity. But every year since then, the optical switches at each end of that fiber cable have gotten better and better, meaning that more and more voices and data can be transmitted down each fiber. So as the switches keep improving, the capacity of all the already installed fiber cables just keeps growing, making it cheaper and easier to transmit voices and data every year to any part of the world. It is as though we laid down a national highway system where people were first allowed to drive 50 mph, then 60 mph, then 70 mph, then 80 mph, then eventually 150 mph on the same highways without any fear of accidents. Only this highway wasn't just national. It was international.

“Every layer of innovation gets built on the next,” said Andreessen, who went on from Netscape to start another high-tech firm, Opsware Inc. “And today the most profound thing to me is the fact that a fourteen-year-old in Romania or Bangalore or the Soviet Union or Vietnam has all the information, all the tools, all the software easily available to apply knowledge however they want. That is why I am sure the next Napster is going to come out of left field. As bioscience becomes more computational and less about wet labs, and as all the genomic data becomes easily available on the Internet, at some point you will be able to design vaccines on your laptop.”

I think Andreessen touches on what is unique about the flat world and the era of Globalization 3.0. It is going to be driven by groups and individuals, but of a much more diverse background than those twelve scientists who made up Andreessen's world when he created Mosaic. Now we are going to see the real human mosaic emerge-from all over the world, from left field and right field, from West and East and North and South-to drive the next generation of innovation. Indeed, a few days after Andreessen and I talked, the following headline appeared on the front page of The New York Times (July 15, 2004): “U.S. Permits 3 Cancer Drugs from Cuba.” The story went on to say, “The federal government is permitting a California biotechnology company to license three experimental cancer drugs from Cuba-making an exception to the policy of tightly restricting trade with that country.” Executives of the company, CancerVex, said that “it was the first time an American biotechnology company had obtained permission to license a drug from Cuba, a country that some industry executives and scientists say is surprisingly strong in biotechnology for a developing nation... More than $1 billion was spent over the years to build and operate research institutes on the west side of Havana staffed by Cuban scientists, many of them educated in Europe.”

Just to summarize again: The PC-Windows flattening phase was about me interacting with my computer and me interacting with my own limited network inside my own company. Then came along this Internet-e-mail-browser phase, and it flattened the earth a little bit more. It was about me and my computer interacting with anyone anywhere on any machine, which is what e-mail is all about, and me and my computer interacting with anybody's Web site on the Internet, which is what browsing is all about. In short, the PC-Windows phase begat the Netscape browsing-e-mail phase and the two together enabled more people to communicate and interact with more other people anywhere on the planet than ever before.

But the fun was just beginning. This phase was just the foundation for the next step in flattening the flat world.

I met Scott Hyten, the CEO of Wild Brain, a cutting-edge animation studio in San Francisco that produces films and cartoons for Disney and other major studios, at a meeting in Silicon Valley in the winter of 2004.1 had been invited by John Doerr, the venture capitalist, to test out the ideas in this book to a few of the companies that he was backing. Hyten and I really hit it off, maybe because after hearing my arguments he wrote me an e-mail that said, “I am sure in Magellan's time there were plenty of theologians, geographers, and pundits who wanted to make the world flat again. I know the world is flat, and thank you for your support.” A man after my own heart.

When I asked him to elaborate, Hyten sketched out for me how animated films are produced today through a global supply chain. I understood immediately why he too had concluded that the world is flat. “At Wild Brain,” he said, “we make something out of nothing. We learn how to take advantage of the flat world. We are not fighting it. We are taking advantage of it.”

Hyten invited me to come and watch them produce a cartoon segment to really appreciate how flat the world is, which I did. The series they were working on when I showed up was for the Disney Channel and called Higglytown Heroes. It was inspired by all the ordinary people who rose to the challenge of 9/11. Higglytown “is the typical 1950s small town,” said Hyten. “It is Pleasantville. And we are exporting the production of this American small town around the world-literally and figuratively. The foundation of the story is that every person, all the ordinary people living their lives, are the heroes in this small town-from the schoolteacher to the pizza delivery man.”

This all-American show is being produced by an all-world supply chain. “The recording session,” explained Hyten, “is located near the artist, usually in New York or L.A., the design and direction is done in San Francisco, the writers network in from their homes (Florida, London, New York, Chicago, LA, and San Francisco), and the animation of the characters is done in Bangalore with edits from San Francisco. For this show we have eight teams in Bangalore working in parallel with eight different writers. This efficiency has allowed us to contract with fifty 'stars' for the twenty-six episodes. These interactive recording/writing/ animation sessions allow us to record an artist for an entire show in less than half a day, including unlimited takes and rewrites. We record two actors per week. For example, last week we recorded Anne Heche and Smokey Robinson. Technically, we do this over the Internet. We have a VPN [virtual private network] configured on computers in our offices and on what we call writers' 'footballs,' or special laptop computers that can connect over any cat-5 Ethernet connection or wireless broadband connection in the 'field.' This VPN allows us to share the feed from the microphone, images from the session, the real-time script, and all the animation designs amongst all the locations with a simple log-in. Therefore, one way for you to observe is for us to ship you a football. You connect at home, the office, most hotel rooms, or go down to your local Starbucks [which has wireless broadband Internet access], log on, put on a pair of Bose noise-reduction headphones, and listen, watch, read, and comment. 'Sharon, can you sell that line a little more?' Then, over the eleven-week production schedule for the show, you can log in twenty-four hours a day and check the progress of the production as it follows the sun around the world. Technically, you need the 'football' only for the session. You can use your regular laptop to follow the 'dailies' and 'edits' over the production cycle.”

I needed to see Wild Brain firsthand, because it is a graphic example of the next layer of innovation, and the next flattener, that broadly followed on the Berlin Wall-Windows and Netscape phases. I call this the “work flow phase.” When the walls went down, and the PC, Windows, and Netscape browser enabled people to connect with other people as never before, it did not take long before all these people who were connecting wanted to do more than just browse and send e-mail, instant messages, pictures, and music over this Internet platform. They wanted to shape things, design things, create things, sell things, buy things, keep track of inventories, do somebody else's taxes, and read somebody else's X-rays from half a world away. And they wanted to be able to do any of these things from anywhere to anywhere and from any computer to any computer-seamlessly. The wall-Windows-Netscape phases paved the way for that by standardizing the ways words, music, pictures, and data would be digitized and transported on the Internet-so e-mail and browsing became a very rich experience.

But for all of us to go to the next stage, to get more out of the Internet, the flattening process had to go another notch. We needed two things. We needed programmers to come along and write new applications- new software-that would enable us really to get the maximum from our computers as we worked with these digitized data, words, music, and pictures and shaped them into products. We also needed more magic pipes, more transmissions protocols, that would ensure that everyone's software applications could connect with everyone else's software applications. In short, we had to go from an Internet that just connected people to people, and people to their own applications, to an Internet that could connect any of my software programs to any of your software programs. Only then could we really work together.

Think of it this way: In the beginning, work flow consisted of your sales department taking an order on paper, walking it over to your shipping department, which shipped the product, and then someone from shipping walking over to billing with a piece of paper and instructing them to churn out an invoice to the customer. As a result of the Berlin Wall-Windows-Netscape phases, work flow took a huge leap forward. Now your sales department could electronically take that order, e-mail it to the shipping department within your own company, and then have the shipping department send out the product to the customer and automatically spit out a bill at the same time. The fact that all the departments within your company were seamlessly interoperable and that work could flow between them was a great boost to productivity-but this could happen only if all your company's departments were using the same software and hardware systems. More often than not, back in the 1980s and early 1990s, a company's sales department was running Microsoft and the inventory department was running Novell, and they could not communicate with each other. So work did not flow as easily as it should.