Harnessing the Power of Networks

The power of networks is a truism of the Internet age, with the idea embedded in the phrase “Internet age” itself. That power puts businesses at a “jump point,” writes Tom Hayes–a place of change “so startling that we have no choice but to regroup and rethink the future.”

Hayes, a veteran Silicon Valley executive, is the author of Jump Point: How Network Culture is Revolutionizing Business, which looks at changes in strategy and even the fundamental organization of the enterprise in the networked age.

The city of Alcobendas, just north of Madrid, is not the first place you’d expect a telecom revolution to start, but that is exactly what Martin Varsavsky is doing there. As the founder of Fon, a company dedicated to building the world’s largest wireless local net-work, Varsavsky has discovered a brilliant way to tap into the viral nature of the new networked economy.

Founded in November 2005, Fon is a “community-empowered company” aimed at building a worldwide network of one million Wi-Fi hot spots by 2010. It’s a lofty goal, but Varsavsky is one of Spain’s most successful serial entrepreneurs, and he has won backing from Web heavyweights Skype, eBay and Google.

Some wonder if advancing technology might derail the “Fon movement,” but Varsavsky plans to expand the company’s service into emerging technologies like WiMax and keep his movement growing.

What’s so revolutionary about Varsavsky’s approach?

On the face of it, nothing. Fon appears to sell routers and a phone service to a subscriber base. But in reality, Fon is a giant social network. When you buy into its service, you receive a router for your home or office. If you opt to become a Fonero, in exchange for making your hot spot available to fellow subscribers who may be visiting your area, you get to use the entire global network any time you are out and about. In other words, pay once for home service and you can connect from hot spots around the world.

Adding to the social dimension, members can personalize the log-in page that other subscribers see when they use a Fon Access Point. A little biography or guide to local highlights makes the experience all the more engaging and sticky.

Fon is an archetype of the new people-driven network: More hot spots result in greater user choice and convenience; meanwhile, the network gets more valuable as more people join.

What’s most clever is that the network is being built by the subscribers themselves, so Fon can grow faster–at a fraction of the cost–than the big network players can because the latter are saddled with billions of dollars of investment in their own infrastructure.

Can Fon attain its goal of becoming the largest Wi-Fi network in the world? Look to the Skype example. An online “telephony club” before being acquired by eBay, Skype grew virally, member getting member, to become the second-largest fixed landline phone operator (with more than 100 million users) in just 18 months–something that took its competitors more than a century.

Technology is a tool of social revolution. Twenty years ago, the imperative was a transformation of industry and society from analog to digital. More recently, we have seen a transition from centralized to distributed networked models.

The coming revolution will change the equation again as consumers make the shift from receivers to connectors. With the network infrastructure in place, people now have the power to do more than just receive information. They can choose whether or not to evaluate, reshape, add value and pass the information along to others in the network. This power shift from receiver to connector is a driving force of the next economy.

The network is everything. To really understand what you will be up against, you need to understand how networks work. You don’t need to be an expert on complex networks. Nobody really is. But, you do need to know the basics, as well as the unique properties, of networks that can either work for or against you.

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