Your book argues that strategy-and indeed business as we know it-is about to be "blown to bits" by the new economics of information. Can you explain this? Much of traditional business and strategy has been built on a fundamental trade-off between between richness-sharing extremely rich information with a very small number of people, and reach-sharing less rich information with a larger number. This trade off is based on the existence of information channels: physical infrastructures or behavioral patterns ranging from supply chains to salespeople to direct mail pieces that support limited movements of information and allow only privileged access to that information. But now, digital networks are making it possible to blow up the link between rich information and its physical carrier by allowing everyone to communicate with everyone else. Once information can travel by itself and there are standards that allow everyone to share that information, it becomes possible to have richness and reach. This phenomenon is creating a new economics of information, rendering the behavioral patterns, institutions, and asymmetries that have defined marketing, supply chains, organization, and the boundaries of the corporation obsolete. So this has profound implications for all businesses-whether they are traditional "information businesses" or not? Absolutely. While information may be the end product of only a minority of businesses-it is the "glue" that holds together value chains, supply chains, consumer franchises, and organizations across the entire economy. And it accountsfor a grossly disproportionate share of competitive advantage and therefore of profits-indeed, some of the most admired companies in businesses far removed from the so-called information industries owe most of their success to their masterful use of information. American Airlines used its control of the SABRE reservation system to achieve higher levels of capacity utilization. Nike employed advertising, celebrity endorsements, and the microsegmentation of its market to transform sneakers into high-priced fashion goods. Coca-Cola, reputedly the most admired corporation in America, excels at one thing-managing the brand. Once informational value chains are able to separate from their physical chains-businesses in every industry face both the opportunity to unleash enormous economic value-and a potentially devastating threat to their very existence. Leaders will have to rethink-and possibly discard-all their previous notions about business definition, competitor threats, and competitive advantage. You explain how the new economics of information will lead to "deconstruction"-the dismantling and reformulation of traditional business structures. What forces are driving this? Digital networks are finally making possible the separation of the economics of information (ie: the content in the Encyclopedia Britannica) and the economics of things (ie: the physical encyclopedia volumes, the salespeople who sell the volumes, etc.). In addition, the explosion in connectivity and the creation of universal standards is blowing up the trade-off between richness and reach. Whereas Britannica's sales depended on the number of customers their salespeople could individually sell to Microsoft's Encarta CD-ROM could be simultaneously sold (or given away) to literally millions of customers-at a fraction of Britannica's $1500 to $2200 price tag. The spectacular demise of Britannica provides a telling example of the destructive power that deconstruction can unleash on complacent businesses. When everyone can exchange rich information without constraints on reach, the channel choices for marketers, the inefficiencies of consumer search, the hierarchical structure of supply chains, the organizational pyramid, and the boundaries of the corporation itself will all be thrown into question. The competitive advantages that depended on them will be challenged. The business structures that had been shaped by them will fall apart. This is in fact already beginning to happen in a number of industries, and over the next five to ten years, we predict many more relationships throughout the business world will deconstruct. You say that deconstruction is most likely to strike where a company can least afford it-can you explain how this might occur in a particular business? Take the newspaper business and the challenge it faces from the Internet. Gurus have been predicting that newspapers will "go electronic" for years-but while the electronic "tablet" newspaper doesn't look likely to replace the print product any time soon, those in the business must realize this is not an all or nothing proposition. Deconstruction does not mean that the newspaper business as a whole is vulnerable, but rather that the critical pieces of the business are vulnerable. For example, classified advertising is a natural on-line product. Print classifieds currently account for about 40% of the revenues of the typical newspaper but only about 10% of its costs. If classifieds were lost, most newspapers would become financially unstable. That is the threat of deconstruction. Not electronic tablets, not Yahoo! providing a customized Daily Me, but the loss of classifieds. Deconstruction is most likely to strike in precisely that sliver of the value chain where the incumbent can least afford to let it happen. How is the new form of disintermediation you describe different than its antecedent, and how do you see it playing out? Previous disintermediations substituted reach for richness and therefore re-segmented the existing business-as in how securities markets displaced corporate banking. The new form of disintermediation adds radically more reach as it simultaneously adds richness too. This does not re-segment the old business model, it destroys it. It is critical to recognize that disintermediation need not attack a whole "business" as conventionally defined, but can instead attack a part, or even a small sliver. How the disintermediation unfolds depends on which player precipitates the attack-but it is most likely to take place wherever the richness/reach trade-off can be shifted and compromises in the current business are thereby eliminated. What industries seem most vulnerable-and who will the winners be? Vulnerability depends on the extent to which the economics of information and the economics of things are mutually compromised (the more value that is being suppressed, the more incentive insurgents have to try to capture it), and the extent to which customers will benefit from the new combinations of richness and reach. Computer stores proved vulnerable because of the mutual compromise; full-service and traditional discount brokerages are vulnerable because of the richness/reach blowup. Conversely, groceries and consumer catalogs currently seem safe from major disintermediation because the embedded compromises between the physical and the informational are slight, and because the value of presenting information electronically, at least now, is simply not high enough. The winners in this new game will be the players who are good at one thing, or more precisely, the smaller number of things that define advantage in a deconstructed business arena. Delivery services like Federal Express, efficient warehouse operations such as Wal-Mart, and even Schwab functioning as a brokerage transaction platform could gain massively from using their specialized, focused capabilities (physical or informational) to support the new intermediating models of others. You predict that the rise of navigators as independent businesses is destined to be among the most dramatic aspects of deconstruction. Who are these "new navigators"? Navigators may be software programs (such as Quicken), databases (Auto Trader), evaluators (Consumer Reports, JD Power), or search engines (Yahoo!). They can also be people, such as personal financial advisors. It is still too early in the game to tell which, if any, of these will be left standing when navigation as a business stabilizes-but while it may now look like a small business, we predict navigation is likely to be the fulcrum around which competitive advantage hinges. How will these players compete? They will compete against each other on three dimensions: reach, affiliation, and richness. Reach, for a navigator, means the size of the universe across which it can navigate-the bigger the better. Agency affiliation means the closeness with which the navigator identifies with the interests of its client(s) (who may be any combination of consumers, retailers, and suppliers) and serves as an agent for the clients' interests. Richness means the quality and customization of the information that the navigator delivers. This competitive dynamic has no necessary connection to the physically defined ways that traditional navigators compete-opening up tremendous profit opportunities for these new players and rendering a potentially devastating threat to existing businesses. How can incumbents defend themselves? The paralysis of the leading incumbent is the greatest competitive advantage enjoyed by new competitors. It is an advantage they usually do not deserve, since if the incumbent would only fight all-out by the new rules, the incumbent would often win. Most incumbents find it hard to accept that competing in the new economy requires cannibalizing legacy assets-from clunky mainframe systems to brands and core competencies. In some cases, it means destroying them. It is easy to deny that deconstruction is really happening by pointing to a history of failures by those who have tried. This is really dangerous. When preemption matters and new businesses evolve at breakneck speed, then the first competitor to get it right will have an enormous advantage. By definition, that first competitor ignored the evidence of a prior, unbroken series of deconstruction failures. Incumbent leaders must recognize that in the new economy, the only sure loser will be a "fast follower." Strategists must begin to think like insurgents rather than incumbents if they are to survive. Many business gurus have predicted a shift in power from the seller to the buyer. Do you agree that this will happen? Once the richness/reach trade-off is broken, navigators cease to be specific to sellers and in many contexts become very cheap. This leads navigators to compete with each other for the attention of consumers based on two new factors: reach and affiliation with consumer interests. They can compete that way because the reach constraints have been relaxed; they will compete that way because that is how consumers prefer to choose among navigators. The pursuit of competitive advantage should, therefore, drive them toward higher reach and closer affiliation with consumer interests. How will the cost equation play out-will consumers ever be willing to pay for navigation? Conversely, will consumers ever be able to profit from selling their own information, as some thought leaders have predicted? While many navigational services-such as those provided by Internet search engines-are currently free, eventually high-quality navigation may well cost real money and therefore be economically feasible only if customers are willing to pay. Much of the customers' unwillingness to pay may stem from the fact that today they don't have to, and it is difficult for them to distinguish quality that is worth the premium. With time, as the Wild West character of cyberspace subsides, that may change. For example, branded navigators, delivering quality content for a subscription, are likely to emerge. In terms of customers selling their own information files-the likelihood of this happening on a wide level is actually quite low. The main reason for this is that the degree of required critical mass is so high-meaning that before any real value is created, a comprehensive and uniform swath of consumer-specific information needs to be gathered and formatted for a number of consumers. In addition, the buy and sell side of each transaction would, in effect, cancel each other out-which makes for a potentially permanently unprofitable and therefore very unattractive business for players to enter. However, consumers may well be motivated to take control of their own information not for profit, but to avoid what they perceive as a real threat to their privacy. How does the blowup of the richness/reach trade-off affect the consumer privacy issue? In the physical world, limitations of richness and reach, more perhaps than laws or ethical self-restraint, have served as the principal protector of individual privacy. But those limitations are fast disappearing. Absent regulation, perhaps the most likely evolution in terms of solutions for this thorny issue will be the promulgation of competing privacy codes, each with some kind of independent authority granting certificates of compliance. Electronic retailers and navigators will then be able to assert with credibility their conformity to a standard that the consumer can at least theoretically understand, and the consumer will be responsible for discriminating between one standard and another. But with the inevitability of abuse, the vulnerability of the unsophisticated, and the critical importance of consumer affiliation as a dimension of competitive advantage, any player pursing a segment-of-one strategy will need to err on the side of caution and transparency in how much information is used. Ethics aside, there is probably a lot more to gain in consumer affiliation from adhering to a tough voluntary standard than there is from exploiting rich information that consumers would not volunteer if asked. If the firm itself exists partly due to the richness/reach trade-off, what are the implications for the large organization as we know it? Shifts in the richness/reach trade-off have already enabled substantial deconstruction of investor relationships, and deconstruction is currently beginning to reshape labor markets. Comprehensive deconstruction of employment and investment is starting to result in more fluid business environments, such as Silicon Valley-and this comprehensive form poses a fundamental challenge to the entire logic of the large corporation. While we believe that the traditional hierarchical organization will continue to be the dominant type of organization in many sectors of the economy for years to come, we also believe that the various patterns of deconstruction open up an organizational alternative somewhere between markets and hierarchies-an alternative that may achieve much of the richness of the former together with the reach of the latter. How far, how soon, how comprehensively this new model will penetrate into the realities of practical management are genuine uncertainties. But it is hard to deny that these questions are now on the table. And while the Silicon Valley model is obviously not a model for all businesses-it can and should be considered a model for the skill and knowledge-intensive parts where profits are made.