Information Innovation Intangible Economy title

Working Paper #04



Virtual Worlds and the Transformation of Business

Impacts on the U.S. Economy, Jobs, and Industrial Competitiveness

Robert B. Cohen

Cohen Communications Group

December 2008

Athena Alliance title

 


Click here to download the PDF version of the full report.

Click here to download the Executive Summary.

Click here to download a summary of the main points of the report.

Click here to see the January 2009 powerpoint presentation of the report.

If you don't have the ability to read PDFs, get Acrobat now by clicking here.


Introduction

V

irtual Worlds, immersive and collaborative environments on the Internet, also referred to as Web 3D, are likely to transform the global business environment. Developed out of online games, social networking, and Web services, Virtual Worlds benefit from several technologies that enhance their usefulness, including massively scaled games, avatars, cloud/on-demand/grid computing, on-demand storage, and next-generation networks.

The convergence of these technologies in a new Virtual World "ecosystem" will change the way businesses operate. By creating immersive environment platforms accessible through mobile and other handheld devices, Virtual Worlds bring powerful computing, data analysis, and decision-making tools to employees of firms of any size.

Virtual Worlds not only elicit customer-generated information and ideas, they enhance collaboration within and between businesses. These platforms facilitate a wide range of business activities and opportunities, such as training and education, product and service development, marketing and strategy creation, and finance exchange, that can be executed in new, interactive environments. By enriching and deepening collaboration within and between firms, Virtual Worlds can transform U.S. businesses in the modern era. This vision—now plausible with current and ever-evolving technology—sees the modern corporation operating and receiving knowledge and inputs from suppliers, employees, and customers in wholly new ways. It also provides for the emergence of highly specialized very small firms that can combine to create innovative products when opportunities for these exist. This offers a vision of a modern guild-like part of the economy.

For the past few decades, business organizations have integrated new technologies into their operations using structures to capture new knowledge and innovations. Several authors have argued that the corporation should move toward the collaborative enterprise, which incorporates the Internet more fully.

Here we argue that online social networking and Web 2.0 platforms are likely to transform core business operations and interactions with suppliers, customers, and supporting services. Virtual Worlds platforms that form the core of a new corporate operations ecosystem will not only allow for horizontal and vertical interactions but will expand the essential business, partner, and management linkages that enhance productivity over the long term.

Virtual World environments promote such changes by helping enterprises develop new products in concert with suppliers as well as with specialized "expert firms" or individual entrepreneurs. In these immersive, collaborative environments, corporate executives and other employees can bring computer simulations and robust databases into Virtual Worlds supported by high-speed, next-generation networks. This allows a wide range of businesses, manufacturing concerns, and services to see the results of business decisions in real time. For instance, banks can visualize analyses of equities data or of options prices and make rapid decisions about where to direct investments.

In some cases, this tool will expand the modern corporation; in others, it will lead to greater specialization.

For example, one scenario envisions a multi-industry conglomerate that acquires or merges with companies in related industries and their suppliers and operates in major parts of the economy. A new conglomerate emerges, for instance, to serve both the aerospace and auto industry and includes suppliers that were once independent of final producers.

Another scenario might result in a modern guild system wherein firms employ extensive Virtual Worlds technology to foster collaboration both inside and outside the firm. These expertise-based firms will be far more capable of amassing specialized knowledge than other, more traditional suppliers or service firms. They also will be better positioned to team up with other "guild system" firms to respond to large projects or to jointly address significant technical challenges. These modern guild firms might be similar to large consulting firms or to today,s highly specialized supplier firms like KPMG, Cadence Design, or Mentor Graphics, although we assert they,d go even further.

We might call them "extremely agile" corporations that can quickly and effectively acquire new products and recognize new benefits from technological innovation and services development.

These emerging collaborative enterprises will use existing Virtual World and social networking technology to form new ecosystems that are three-dimensional immersive environments that can be secured behind a firewall either online or within the corporation,s intranet system or in secure extranets that are outside of corporate firewalls.

The evolution of the Internet to Web 3D or fully functional Virtual Worlds will require extensive use of cloud/on-demand/grid computing, on-demand storage, and next-generation networks. These three technologies will allow businesses to take compute-intensive processes, such as product design, investment decisions, and daily business problems, and bring them under the control of a wide range of corporate executives. This will enable business collaboration on a heretofore-unimaginable scale and scope. Furthermore, embracing these three new technologies makes it possible for corporations to make the social networking organization the central tool for integrating supplier and partner expertise into their own operations, either temporarily or permanently. This will transform both manufacturing and services-oriented businesses and the U.S. economy as a whole.

Some of these Virtual World technologies are used in business today. Several Virtual World sites have millions of registered users; the total number of users is expected to grow to one billion worldwide by 2017. As of May 2008, IBM,s Virtual World connected at least 6,000 active employees. Sulake,s Habbo Hotel has nearly 100 million registrants and 10 million unique monthly visitors. Linden Lab,s Second Life reported 12 million registrants and about one million active users.

Many businesses also use cloud computing. Amazon offers cloud computing to serve many small and large corporations. CERN, the world,s largest particle physics lab, located outside Geneva, uses cloud to link its many scientific computers into a global computing grid that analyzes particle interactions. Google, Amazon, and Microsoft have all built cloud-computing and on-demand data centers to support their businesses. IBM, Morgan Stanley, and other firms are building a substantial cloud-computing infrastructure that in one case will include more than 100,000 processors.

The International Telecommunications Union and many large communications equipment firms are working assiduously to plan for next-generation networks. Japan plans to build a next-generation network by 2010 that has a capacity of nearly a petabit-per-second and gigabit-per-second access capacity for each user. By 2015, Japan,s next-generation network capacity will exceed one petabit per second, with at least 10-gigabits- per-second access for each user. This will be roughly 100 times the speed of current scientific connections for the Internet.

This essay draws a bold vision for the future of business based on an understanding of how key technologies and online social networking will transform business. There is a quiet revolution taking place outside the view of most business and political leaders. This paper aims to alert the wider world to the tectonic changes in business brought about by new and emerging technologies and to encourage their use in making transformational changes in the marketplace.

The modern corporation took shape in this country in the late 19th and early 20th century, and, with it, the concept of mass production took hold. Corporations adopted "lean production" systems that employed mass customization.

What this paper describes is how corporations in this century will begin to use new technologies to transform the methods of production, the generation of services, and the management of people and processes.

To make our case, this paper:

1. Explains Virtual Worlds and how on-demand/utility/grid computing, on-demand storage, and next-generation networks support their commercialization.

2. Explores how Virtual Worlds and the technologies that support them can change the nature of the firm and influence collaboration in business.

3. Describes the changes that give rise to collaborative enterprise, including the two likely main forms of organization: the multi-industry conglomerate and the modern guild system. We also explore how enhanced collaboration has the power to extend and alter the ways in which today,s firms create products and services and redefine relationships with suppliers and customers.

4. Discusses how Virtual Worlds and supporting technologies will affect U.S. industrial competitiveness and provides policy recommendations in a number of areas, including deployment and adoption of Virtual Worlds, collaboration, skills development, and the ideal business environment needed for full and rapid adoption of these new technologies.
The rise of the collaborative enterprise that is likely to result from the successful deployment of Virtual World technologies will usher in a new era of business. It will change the way firms compete with one another for customers in both goods and services industries.

It is our firm belief that if our nation accelerates the development and maturation of Virtual Worlds, it will encourage a more collaborative and enterprising form of business. This will lead to greater innovation, sustained productivity, and competitive growth in the world economy.

It will also create challenges. The ability of manufacturing, service, and knowledge-based businesses to find whatever inputs they need regardless of their geographical location poses a specific trial. Virtual Worlds could engender new forms of outsourcing or place the United States at a competitive disadvantage if firms around the world were faster to adopt Virtual Worlds than their U.S. counterparts.

Thus, the need for the United States to move quickly is great. This paper lays out a number of policy areas. These include policies: to heighten the awareness of the importance of Virtual Worlds and the collaborative enterprise to the economic competitiveness of the nation; address the need for the technical infrastructure; encourage adoption of these collaborative tools and deploy these tools everywhere, including in communities left behind; and promote the education and training that employees and businesses will need if they are to successfully work as collaborative enterprises.

With the right policies in place, the companies and workers can use the tools of Virtual Worlds to transform the United States into a collaborative enterprise-driven economy. As a result, this new phase of business can potentially create millions of well-paying jobs for the people of the United States and sustain American prosperity for years to come.



Click here to download the PDF version of the full report

If you don't have the ability to read PDFs, get Acrobat now by clicking here.