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Is Web 2 causing the dissolution of the mega-corp?

Author: oreillynet.com
Category: Core XML
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I’ve been wearing my entrepeneurial hat of late, and I have no doubt that its skewed my perceptions somewhat, but I’ve noticed an interesting phenomenon that’s occurring somewhat out of the main spotlight of the media circus that’s the tech industry. In the mid-to-late 1990s, while it was possible to start companies out of a garage, and SOHO offices became something of the rage, most such companies so started were either services oriented companies that were intended to remain relatively focused on the local communities, or they were companies with plans to grow to be the next Microsoft in ten years. One or two man custom development did of course occur - software’s only real requirements is that you need to have a machine handy - but in most cases, such customization involved a large company subcontracting out to smaller ones.

Lately, however, this is changing, a change driven largely I suspect by the open source development model, but driven in a way somewhat different than the “New World Order” folks of yesteryear predicted. The virtual corporation as envisioned earlier (and expounded upon in such lengths by Wired Magazine) was predicated upon the notion that programmers, graphical designers, and other “creative” types would end up as glorious freelancers, independent entrepeneurs in control of their own destinies, the vanguard of the move towards the new frontiers of business.

What happened instead was a wholesale move by the corporate world toward outsourcing, usually to the place of lowest labor costs, the gutting of IT development houses, and the rise of the rent-a-programmer bodyshops that served primarily to keep programmer salaries down because the “staffing solutions” companies controlled access to the few jobs that weren’t sent half a world away. Is it any real surprise given this that the tech industry effectively collapsed for four years and tens of thousands of talented programmers left programming for more sane jobs elsewhere?

It’s 2006, and the economy seems to be humming along (largely due to a huge binge of Fed fueled free cash coming into the housing market that we’ll be paying for again very soon now), technology standards have matured and all of a sudden programmers are in demand again. The salaries are rising, as are the VC funds looking at capitalizing on funding the next round of really great ideas, but curiously enough, those programmers and related creatives (especially the more senior ones) aren’t biting.

Why should they? Too many of them have seen companies they work for take the often brilliant pieces that they’ve created make senior managers and investors several tens or even hundreds of times as much money as they made themselves, usually after spending months or even years of 60+ hour weeks. Too many have found themselves in the rent-a-programmer rat race, dropped into doomed projects that were oversold by inexperienced (or commission hungry) salespeople. Too many found themselves conveniently trimmed from the payrolls as their jobs were outsourced to India or China, usually with far too little warning to prepare in advance financially, and typically treated like criminals as they were esorted out the door.

Yet a curious thing happened as the business cycle turned, as it inevitably does. Far from rushing back into the workforce, these people did something with this emerging network that they created … they networked. Networks are interesting structures, because they are not in general held together by money. Rather, networks thrive on favors and obligations. I build up obligations of others to me by doing favors for them. Money may be involved, of course, but a good networker knows when to take part of their payment in slightly less tangible form, as favors that can be redeemed at some point in the future. This is, oddly, something that may seem to be easy to automate but is generally not, because overall, we don’t like putting hard values on favors.

Take a large group of people who have grown up around networking, not at the golf-course or the country club with their local neighbors, but with software gurus, angel investors, idea mavens, writers and artists, and what ends up emerging is an economy built upon this trust.

Novel concept here - we generally do business with people we trust, and we generally don’t do business with people we don’t trust. The people who are the actual producers in the technology sector have developed a fairly healthy mistrust of those who come with promises of cash and large contracts written in tiny type. On the other hand, they feel they can trust those people that are in their own networks, largely because the web of favors and obligations applies just as readily to those other people as they apply to them.

The virtual company of the twenty-first century increasingly looks like, well, the web. Software developers, project managers, writers and designers create “alliances” to work together on projects, kick it up into a community project which builds up both word of mouth and attracts potential investors, then reaches a stage with the projects that they can differentiate the community version from an enterprise version with additional bells and whistles that can in turn be licensed to pay off the people involved. Once it reaches a reasonably self-sustaining size, you might get the physical plant in place - a tony corporate office somewhere for the senior management and maybe some workspace for the devs, but by then, the initial core of creatives have likely gone on to more fallow ground. Or if the technology hits in the right space it will be bought up, the creatives will get some nice corporate offices which they’ll occupy for six months before getting bored and striking out again on their end.

In other words, at least in this space, the journey to the big glass corner office is the goal, and I suspect increasingly that in the entrepeneurial world of the twenty-first century, getting trapped in the glass cell is considered more of a mark of failure (you’re not out there starting the next big thing) than one of success.

Take a look at some very interesting trends and developments, both of which I’m watching happen in Vancouver (and to a lesser extent here in Victoria). Programmer positions are going unfilled because there aren’t enough programmers and other creatives in the local population to fulfill all the software development needs. I’ve talked on this before, the dread consequences of the purges of a few years ago, in which demographic factors (aging baby boom and a fairly steep drop in the population groups thereafter), an alienated programming work force, and a huge drop in enrollment in computer sciences as college kids realized that maybe this wasn’t the path to riches after all and it was hard work on the side, all combined to significantly cut the number of people in the field.

On the flipside, local business entrepeneurs are scoring it big with “membership offices”, places where, for a fairly modest fee, you have desks, tables, open conference rooms and the like with internet connections, fax and printing services, a good cafe and coffeeshop and the like. These aren’t the fairly squalid “internet cafes” that seem to have largely replaced the video arcade as hangouts for hard-core video gamers (indeed, one of the most notable facets of the former is the assumption that you HAVE a laptop computer - you’ll likely find few of them in-house) but rather is an “office” for the mobile generation.

So how does this differ from outsourcing, a point that I’ve largely railed against in the post and will continue to do so in the future? I think the biggest difference is the fact that in this case it is largely the corporation itself that is outsourced. Corporate laws on the books were written at a time when you needed a physical plant and a fairly large capital investment in order to have a business succeed, and were intended to protect the investors in exchange for providing a tangible benefit back to the community - the creations of jobs and livelihoods. It can be argued that on the one end, the largest and most powerful corporations have largely made a mockery of these laws, using them to create not just “corporate persons” but “corporate superhumans” that have far more rights and privileges compared to individuals.

On the other hand, virtual corporations tend to be almost too ephemeral to be considered within the framework of such corporate law. They persist long enough to create a software “product” or service, perhaps tied to a server located a thousand miles away from any of the people involved. Once the software is done, there may be some inventive to continue building and improving it, but its rare for the initial team to stay on beyond some arbitrary cash-out time (usually once the software is sold, as the restrictions on IPOs now so heavily favor aftermarket investors that most people involved with the company end up as paper millionaires who still have to bum a ride to work every day because they’re blocked from selling shares).

Several years ago, I read an article in Wired which made me truly angry, to the extent that I cancelled my subscription the next day. The article talked about the Warrior-self-entrepeneur, the lone Ayn Rand-inspired hero who can do the work of twenty men, and then pointed out how, in the new corporate world, these warriors would become the next kings and icons (and more, that EVERYONE would need to become one).

It was hogwash then, it’s hogwash now. The virtual corporation has emerged out of necessity, out of the realization that if you are a creative, the large multinational corps will take what you have and chew you up and spit you out a mangled mess. If you’re lucky, you’ll end up in the ranks of technical management, which almost invariably means that you are involved in managing other developers, simultaneously robbing the company of a competent developer and adding someone who, in all too many cases, has poor people skills as a manager. Moreover, the technical hierarchy within most companies, even many larger software companies, tends to be much like Scotty’s engineers in Star Trek - you may be the one responsible for moving the ship, but you have no say in where it goes (at least if you want to stay employed).

Of course, for the more independent minded there is always the corporate “professional consultant”, rent-a-programmer outfits in which the consultant managers are typically well-tailored kids who pull down more than most of the programmers do, without needing to have spent four to eight years in college and ten to twenty years of professional experience. This is corporate hell - no real authority, high expectations, no real profiting from the work you do beyond an often anemic paycheck.

All things considered, the irony of globalization may very well end up being that in the interest of creating a cheap labor force the large corporations may have inadvertantly created a very expensive one, one that is as likely to compete with them than to help them, and one where there are not enough competent practicioners to fufill the very needs they have at any price.

One final note - while I see some very encouraging signs about some things opening up at Microsoft (enough for the grist of another op-ed piece) recent posts have pointed out how the release of Vista, coming considerably later than anticipated, is now one fo the largest software projects ever attempted, at a time when the demand for yet another new, groundbreaking OS is perhaps at the lowest point its ever been. I juxtapose that with the recent releases of Google spreadsheets and the acquisition of Writely, both projects that were basically created as the result of the virtual corporations described above.

Apples and oranges? Most definitely - but the point I’m trying to make here is that the monopolistic megacorp has created the ultimately monolithic application, one driven by the need to maintain a black bottom line and drive share prices up rather than the need to solve a real world need. The virtual corps have created simple apps that by themselves are little more than curiosities but that provide useful added value to the other company’s services. I cannot help but see the future not in the tens of millions of lines of managed C++ but in the couple of thousand lines of JavaScript code in Writely.

Kurt Cagle lives in Victoria, British Columbia.