(FORTUNE Magazine) – There was plenty of news at the recent World Economic Forum in Davos: Antiglobalization protesters confronted Swiss police, Yasser Arafat excoriated Israel. And then there was this quiet little announcement: The modern corporation is dying.

Throughout the five-day event, speaker after speaker talked about how emerging "business Webs" or "value networks" are connecting "modular" or "molecular" corporations. The language varied, but the implications were the same. Companies that design and brand their own products, build and package them, and then deliver them to customers will soon no longer exist.

This notion may sound improbable. It did to me the first time I heard it. A few weeks before the global event, consultants from A.T. Kearney stopped by my office to talk about what they call "value networks." Because of the Internet, they said, companies now have the ability to strip down their business to its essence, to focus on where the greatest value creation (and profits) lies. Extraneous functions can be eliminated through partnerships and newly supercharged forms of outsourcing. Facing my skepticism and demands for examples, they brought up Cisco. The company's brilliance, they said, lies in integrating for customers a complex variety of networking hardware and software. That's one reason its margins--60% and above--are so much higher than those of the typical manufacturer. What if, they speculated, Cisco decided to outsource or partner for everything else it did and focus only on that integration--becoming essentially a software and services firm? A colleague and I shook our heads as they walked out. Ridiculous.

Then came Davos, and I soon discovered that it might not be ridiculous at all. For one thing, the smart observers all agreed that while being on the Net is necessary for any company, that alone will never guarantee business success. As Kearney's chairman emeritus Fred Steingraber put it in a Davos presentation, "The efficiency enhancement offered by electronic marketplaces should only be viewed as a foundation for the real opportunities." The Net reduces the cost of transactions of all types, inside or outside a company's walls. That's great. But, as a result, every company's costs are going down, not just yours. And the benefits will go mostly to the customers, who get lower prices. So merely to get "on the Net" means reducing costs in a business that could easily be shrinking in revenue. Steingraber pointed to Charles Schwab as an example. Sure, it pioneered online stock trading by lowering the cost per trade. It gained market share, but other brokers imitated the move. The result: the entire industry's margins fell.

The key to solving this new-economy paradox is, simply, killing the corporation. Mohanbir Sawhney, Northwestern's influential management thinker, called for breaking corporations into essential elements, what he dubbed the "molecular organization." John Hagel, whose two books, Net Worth and Net Gain, have been essential texts of the Net revolution, said most organizations have up to now been an "unnatural bundle" of three very different kinds of businesses: finding and building customer relationships; creating products and marketing what you've made; and managing your infrastructure, from overseeing call centers to delivery systems. Companies are going to have to be "world-class" in just one of these categories, he believes, "and rely on others who are themselves world-class to provide the other two." Hagel last year left consulting firm McKinsey to practice what he preaches at startup 12 Entrepreneuring.

A key element to this new consensus analysis: realizing that parts of a company create value and profit, while others don't. The money-making pieces subsidize the money losers. Now, using the Internet, each business component or process can be individually farmed out and reconnected, Lego-like, to processes elsewhere at unprecedentedly low cost. This is outsourcing on speed. If there's another company that can more efficiently perform a function your company once did, turn that component over. The Web makes integrating the work of multiple partners nearly seamless. With this outsourcing in place, only business functions through which your company can add genuine value will remain. Hagel underscores the magnitude of this change: "It will force business management to ask the most basic question of all: What business am I really in?"

The Web's ability to drive down the cost of transactions between businesses will be profoundly important in shaping the new business organization, said the Davos brain trust. Don Tapscott last summer co-authored Digital Capital: Harnessing the Power of Business Webs. Tapscott contrasts the new corporate shape--what he calls "business Webs"--with the ultimate old-economy operation: "Henry Ford owned a power plant, glass factory, steel mill, rubber factory, even mahogany forests in Honduras and barges that crossed the Great Lakes. That's because the transaction costs of partnering with others were much greater than doing all this within the boundaries of Ford." But now radical disaggregation becomes possible. Says Sawhney: "Instead of one big monolithic entity, companies start to look like clusters of distributed capabilities. It's the way the movie industry works."

At the end of my time in Davos, I found a chance to collar Cisco CEO John Chambers. I was eager to hear from someone who actually has to run a cutting-edge operation--and not just ruminate on its shape--about whether this was all feasible. I told him about Kearney's hypothetical redesign of Cisco as a systems integrator. Chambers startled me with his reply: "We're already much of the way there." About 70% of Cisco's hardware goes directly from the deeply interconnected partners who make the products to customers, without a Cisco employee's ever handling any goods. Chambers emphasized that he continually reevaluates what should be Cisco's primary business.

That's one way--maybe the only way--to make sure you're the one attending the wake of the modern corporation, not the one being buried.

DAVID KIRKPATRICK is FORTUNE's senior editor, Internet and technology. Feedback can be sent to dkirkpatrick@ fortunemail.com.