The ability to capture real-time demand data and act on it is the key to dominance in any market. This is the foundation of the Fourth Shock. Enron serves as a great example as to how well a company can thrive when it has a informational advantage in demand data. Enron, as a pipeline company, sat in a unique position to capture data on both sides of the natural gas transaction – both from the producers whose gas was going into one side of their pipeline, and from the consumers to whom it was flowing out the other. By gathering that demand information on both sides, Enron had insight into what supply looked like  and what demand looked like, whereas the average gas supplier or gas customer only had one or the other. Once Enron had captured this information, they inverted the business model by using trading activities as a hedge against the risks of production, rather than using production as a hedge against the risks involved in trading. Once their informational advantage allowed for this kind of inversion, they could make more profitable trades than any other market participant because they had more information about the direction of the market. This was so important because they could take a set of assets that had historically generated say 10% in capital, extract the demand data out of that generation and use it, and they could suddenly generate significantly higher rates of return from the same set of assets. It became a brilliant profit machine.

Enron figured out that what they needed was a piece of the supply chain that would offer them unique information about the distribution process. They found this in their use of the pipeline, and the gathering of information at both ends.

After a few years, they turned and duplicated their process in the electric power market. In the chapter, we look at how Enron turned the mechanism of the power plant into a substitute for the pipeline in the data gathering process, and how that turned into a second successful inversion of the business model. Finally we look at why Enron failed, not because of corporate greed and lies, but because of entering markets in which they had no informational advantage. With no informational advantage, their trading was not nearly as successful, and the losses incurred were what ended up necessitating the lies and cover-ups that essentially ended the reign of Enron.