TechSector

The Carnival of Creative Destruction

Words like 'disruption' and 'destruction' usually have negative meanings, and one may strain to find any good ways in which to use the terms.  But today, the accelerating rate of change ensures that more technologies alter more aspects of life at an ever-quickening rate.  A little-understood dimension of this is the concept of Joseph Schumpeter's 'Creative Destruction', where the process of technological change topples existing norms, often quite rapidly. 

Technological diffusion was in a lull in 2008, as I pointed out at the time.  But now, in 2010, I am happy to report that the recess has passed, and that the accelerating rate of change is rising back to the long-term exponential trendline (although it may not be fully back at the trendline until 2013, when people who have not been paying attention will be wondering why they were taken by surprise).  The Impact of Computing continues to progress, infusing itself into a wider and wider swath of our lives, and speeding up the rate of change in complacently stagnant industries that never thought technology could affect them.  Silicon Valley continues to be 'ground zero' for creative destruction, and complacent industries thousands of miles away could be toppled by someone working from their bedroom in Silicon Valley. 

Just a few of the examples of creative destruction that is presently in process have been covered by prior articles here at Techsector.  These, along with others, are :

1) Video Conferencing is poised to disrupt not just airline and hotel industry revenues (which stand to lose tens of billions of dollars per year of business travel revenue), but the real-estate, medical, and aeronautical industries as well.  Corporations will see substantial productivity gains from successful adoption of videoconferencing as a substitute for 50% or more of their travel expenses.  Major mergers and acquisitions have happened in this sector in the last few months, and imminent price reductions will open the floodgates of diffusion.  Skype provides a form of video telephony that is free of cost.  This is described in detail in my August 2008 article on the subject, as well as in my earlier October 2006 introductory article. 

2) Surface Computing, which I wrote about in July of 2008, has begun to emerge in a myriad of forms, from the handheld Apple iPad to the upcoming consumer version of the table-sized Microsoft Surface.  This not only transforms human-computer interaction for the first time in decades, but the Apple 'Apps' ecosystem alters the utility of the Internet as well.  All sizes between the blackboard and the iPad will soon be available, and by 2015, personal computing, and the Internet, will be quite different than they are today, with surfaces of varying sizes abundant in many homes. 

3) The complete and total transformation of video games into the dominant form of home entertainment will be visible by 2012 through a combination of technologies such as realistic graphics, motion-responsive controllers, 3-D televisions, voice recognition, etc.  The biggest casualty of this disruption will be television programming, which will struggle to retain viewers.  Beyond this, the way in which humans process sensations of pleasure, excitement, and entertainment will irrevocably change.  Thus, the way humans relate to each other will also change.  I have written about this in April 2006, with a follow-up in July 2009. 

4) The book-publishing industry has been stubbornly resistant to technology, as evidenced by their insistence as late as 2003 that manuscript queries be submitted by postal mail, and that a self-addressed stamped envelope be enclosed in which a reply can be sent.  A completed manuscript would take a full 12 months to be printed and distributed, and the editors didn't even find this to be odd.  Fortunately, two simultaneous disruptions are toppling this obsolete and unproductive industry from both ends.  Print-on-demand services that greatly shorten the self-publishing process and entry-cost, such as iUniverse and Blurb, are now flexible and easy, while finished books can further avoid the paper-binding process altogether and be available to millions in e-book format for the Kindle and other e-readers.  When e-readers are eventually available for only $100, bookstores that sell paper books will be relegated to surviving mostly on gifts, coffee table books, and cafe revenues.  This is a disruption that is happening quickly due to it being so overdue in the first place, resulting in a speedy 'catchup'.  I wrote about this in more detail in December of 2009.

5) The automobile is undergoing multiple major transformations at once.  Strong, light nanomaterials are entering the bodies of cars to increase fuel efficiency, engines are migrating to hybrid and electrical forms, sub-$5000 cars in India and China will lead to innovations that percolate up to lower the cost of traditional Western models, and the computational power engineered into the average car today leads to major feature jumps relative to models from just 5 years ago.  The $25,000 car of 2020 will be superior to the $50,000 car of 2005 is every measurable way. 

By 2016, consumer behavior will change to a mode where people consider it normal to 'upgrade' their perfectly functioning 6-year-old cars to get a newer model with better electronic features.  This may seem odd, but people did not tend to replace fully functional television sets before they failed until the 2003 thin-TV disruption.  The Impact of Computing pulls ever-more products into a rapid trajectory of improvement. 

By 2018, self-driving cars will be readily available to the average US consumer, and will constitute a significant fraction of cars on the highway.  This will revise existing assumptions about highway speeds and acceptable commute distances, and will further impede the real estate prices of expensive areas. 

6) The Mobile Internet revolution, which I wrote about in October of 2009, is already transforming the way consumers in developed markets access the Internet.  The bigger disruption is the entry of 1 billion new Internet users from emerging economies.  While many of these people have relatively little education compared to Western Internet users, as the West shrinks as a fraction of total Internet mindshare, many Western cultural quirks that are seen as normal (such as institutionalized misandry sustained by an ever-expanding state) might be seen for the aberrations that they are.  Thomas Friedman's concept of the world being 'flat' has not even begun to fully manifest. 

7) The energy sector is in the midst of multiple disruptions, which will introduce competition between sectors that were previously unrelated.  Electrical vehicles displace oil consumption with electricity, even while the electricity itself starts to be generated through nuclear, solar, and wind.  The electrical economy will be further transformed by revolutions in lighting and batteries.  Cellulostic ethanol will arrive in 2012, and further replace billions of gallons of gasoline.  I wrote in October 2007 why I want oil to surpass $120/barrel and stay there (it subsequently was above that level for a mere 6-week period in 2008).  This leads to why I claim that 'Peak Oil', far from being fatal for civilization, will actually be a topic few people even mention in 2020.  The creative destruction in energy will extend to the geopolitical landscape, where we will see many petrotyrannies much weaker in 2020 than they are today. 

8) Despite the efforts of Democrats to create a system unfavorable to advancement in healthcare and biotechnology, innovation continues on several fronts (partly due to Asian nations compensating for US shortfalls).  One disruption is robotic surgery, where incisions can be narrow instead of the customary practice of making incisions large enough for the surgeon's hands, which in turn often necessitates sawing open the sternum, pelvis, etc.  Intuitive Surgical is a company that already has a market cap of $14 Billion. 

The biggest disruption, however, is that the globalization of technology is enabling medical tourism.  In the US, about twice as much is spent on healthcare as in other OECD countries.  If manufacturing and software work can be offshored, so can many aspects of healthcare, which is much more expensive than manufacturing or software engineering ever became in the US.  This will correct inflated salaries in the healthcare sector, return the savings to consumers, and force innovations and systemic improvements in all OECD countries. 

9) By all accounts, the cost of genome sequencing has plunged by a factor of 10,000 in just the last 4 years (it is less clear how this was accomplished, and whether the next 4 years will see a comparable drop).  I tend to be skeptical about such eye-popping numbers, because if something became so much cheaper so quickly, yet it still didn't sweep over the world, then maybe it was not so valuable after all. 

But it is also possible that while the raw data is now available cheaply, there is not yet enough of a community that instructs people how to use their data.  As more people sequence their genomes, networks of common genetic patterns will form, and health information will be shared.  Medicine will take on a Web 2.0 flavor, and physicians that realize they need to practice medicine as an information technology will thrive, while those who still adhere to the paternalistic paradigm will be left behind.  The standard medical diagnosis will be for a user to ask questions to others with the same genotype, and receive answers from multiple laypeople, and then, if necessary, take the information to a genome-savvy doctor.  The Economist has a special report on the implications of inexpensive genome sequencing. 

10) Social media such as Facebook, Twitter, etc. are mostly inundated with the trivialities of young people, or of older people who never matured, who think they have an audience far larger than it is.  However, these mediums have been used to horizontally organize interest groups and movements for political change that know no distance barriers or boundaries. 

Blogs have shattered the hold that traditional media had on the release of information and opinions, and the revenues of newspapers, magazines, and network television have tumbled.  The Tea Party movement in the US was started by a very small number of people, but has surged with a momentum that has reshaped the American landscape in just one year, and, irony of ironies, the Tea Party is spreading to overtaxed Britain.  The next Iranian revolution will not only use Twitter and YouTube, but will have millions of collaborators outside of Iran, operating out of their own homes. 

11) The financial services industry currently charges $100 Billion in fees for the $3.3 Trillion in annual credit/debit card transactions that take place in the US alone.  This was the cover story of Wired Magazine for March 2010, and was a structure established in an era when computing power needed to process transactions was expensive.  Today, several startups are seeking to change the way money is transacted to eliminate this cut that incumbent companies take.  Major financial services companies will see shrinkages in revenue, and will have to innovate and create new value-added services, or accept a diminishment. 

Aside from this effectively being a sizable 'tax cut' for the economy, this is particularly valuable as a complement to mobile Internet penetration in poorer regions, as the capacity to conduct web micro-transactions without fees will be an essential element of human development.  The highly successful concept of micro-finance will be augmented when transaction fees that consumed a high percentage of these sub-$10 transactions are minimized. 

12) 3-D Printing will soon be accessible to small businesses and households.  This transforms everything from commodity consumer goods to the construction of buildings.  An individual could download a design and print it at home, rather than be restricted to only those products that can be mass produced.  It is quite possible that by 2025, construction of basic structures takes less than one-tenth the time that it does today, which, of course, will deflate the value of all existing buildings in the world at that time. 

So we see there are at least 12 ways in which our daily lives will shift considerably in just the next few years.  The typical process of creative destruction results in X wealth being destroyed, and 2X wealth being created instead, but by different people.  For each of the 12 disruptions listed, 'X' might be as much a $1 Trillion.  As a result, the US economy might be mired in a long-term situation where vanishing industries force many laid off workers to start in new industries at the entry level, for half of their previous compensation, even as new fortunes created by the new industries cause net wealth increases.  The US could see a continuation of high unemployment combined with high productivity gains and corporate earnings growth for several years to come.  This would be the 'new normal'. 

Income diversification is the golden rule of the early 21st century.  Those that fail to create and maintain multiple streams of income are imperiling themselves.  The hottest career one can embark on, which will never be obsolete, is that of the serial entrepreneur. 

Mobile Broadband : A Prediction Follow Up

Some of you may recall that over three and a half years ago, on February 4, 2006, I predicted that by 2013, at least 900 million people in emerging nations, 80% of whom had no Internet connection in 2006, would have access to a wireless broadband connection through their cellphones.  That seemed like a bold prediction at the time.

But in the Economist, there is a special report on mobile phones in the developing world, and this chart depicts the progress towards my prediction quite nicely.  Mobile broadband subscribers will go from nearly zero in early 2006 when the prediction was first made, to 1.4 billion by 2013 (of which 900 million can safely be assumed to be in emerging nations). 

It is often said that no other invention has done more for so many people so quickly than the mobile phone, given the large number of people who did not have even a landline phone prior to getting a mobile phone.  However, the inital deployment of rudimentary mobile phones was just the beginning.  As 3G broadband at speeds greater than 1 mbps spread to a billion people with no prior Internet access, the entire nature of their existence is transformed.  As per this second chart from the Economist report, the GDP boost from broadband Internet penetration is far higher than the already-impressive boost we have seen from simple mobile access, and we can thus expect another, stronger wave of human advancement as mobile broadband diffuses.  Simultaneously, the entire nature of the Internet is also transformed.  Think of the massive developmental catalyst such a rapid technological diffusion would be.  Child literacy would rise as the educational materials of the full Internet will be available in locations where no libraries exist, making near-universal child literacy a reality within a decade.  Agricultural and fishery supply chains will shorten tremendously.  Disaster relief will become far easier, as will the apprehension of criminals.  The upliftment that once appeared to be a process of decades will now happen in mere years.   

We can thus proceed to the next prediction, which is that by 2020, 4 billion people will have 4G wireless broadband access on their handheld mobile phone, at speeds exceeding 100 Mbps.  In other words, a landline speed that even wealthy Americans could not have in 2005 will be available wirelessly to billions of the very poorest people just 15 years later, in 2020.  Imagine that. 

Video Conferencing : A Cascade of Disruptions

Almost 3 years ago, in October of 2006, I first wrote about Cisco's Telepresence technology which had just launched at that time, and how video conferencing that was virtually indistinguishable from reality was eventually going to sharply increase the productivity and living standards of corporate employees (image : Cisco). 

At that time, Cisco and Hewlett Packard both launched full-room systems that cost over $300,000 per room.  Since then, there has not been any price drop from either company, which is unheard of for a system with components subject to Moore's Law rates of price declines.  This indicates that market demand has been high enough for both Cisco and HP to sustain pricing power and improve margins.  Smaller companies like LifeSIze, Polycom, and Teleris have lower-end solutions for as little as $10,000, that have also been selling briskly, but have not yet dragged down the Cisco/HP price tier.

This article in the San Jose Mercury News indicates what sort of savings these two corporations have earned by use of their own systems :

In a trend that could transform the way companies do business, Cisco Systems has slashed its annual travel budget by two-thirds — from $750 million to $240 million — by using similar conferencing technology to replace air travel and hotel bills for its vast workforce.

Likewise, Hewlett-Packard says it sliced 30 percent of its travel expenses from 2007 to 2008 — and expects even better results for 2009 — in large part because of its video conference technology.

If Cisco can chop its travel expenses by two-thirds, and save $500 million per year (which increases their annual profit by a not-insignificant 6-10%), then every other large corporation can save a similar magnitude of money.  For corporations with very narrow operating margins, the savings could have a dramatic impact on operating earnings, and therefore stock price.  The Fortune 500 alone (excluding airline and hotel companies) could collectively save $100 billion per year, in a wave set to begin immediately if either Cisco or HP drops the price of their solution, which may happen in a matter of months.  We will soon see that for every $20 that corporations used to spend on air travel and hotels, they will instead be spending only $1 on videoconferencing expenses.  This is gigantic gain in enterprise productivity. 

Needless to say, high-margin airline revenue from flights between major business centers (such as San Francisco-Taipei or New York-London) will be slashed, and airlines will have to consolidate to fewer flights, making suitability for business travel even less flexible and losing even more passengers.  Hotels will have to consolidate, and taxis and restaurants in business hubs will suffer as well.  But these are merely the most obvious of disruptions.  What is even more interesting are the less obvious ripple effects that only manifest a few years later, which are :

1) Employee Time and Hassle : Anyone who has had to travel to another continent for a Mon-Fri workweek trip knows that the process of taking a taxi to the airport, waiting 2 hours at the airport, the flight itself, and the ride to the final destination consumes most of the weekends on either side of the trip.  Most senior executives log over 200,000 miles of flight per year.  This is a huge drag on personal time and quality of life.  Travel on weekdays consume productive time that the employer could benefit from, which for senior executives, could be worth thousands of dollars per hour.  Furthermore, in an era of superviruses, we have already seen SARS, bird flu, and swine flu as global pandemic threats within the last few years.  A reduction of business travel will slow down the rate at which such viruses can spread across the globe and make quarantines less inconvenient for business (although tourist travel and remaining business travel are still carriers of this). 

2) Real Estate Prices in Expensive Areas : Home prices in Manhattan and Silicon Valley are presently 4X or more higher than a home of the same square footage 80 miles away.  By 2015, the single-screen solution that Cisco sells for $80,000 today may cost as little as $2000, and those from LifeSize and others may be even cheaper, so hosting meetings with colleagues from a home office might be as easy as running a conference call.  A good portion of employees who have small children may find it possible to do their jobs in a manner than requires them to go to their corporate office only once or twice a week.  If even 20% of employees choose to flee the high-cost housing near their offices, the real estate prices in Manhattan and Silicon Valley will deflate significantly.  While this is bad news for owners of real-estate in such areas, it is excellent news for new entrants, who will see an increase in their purchasing power. 

3) Passenger Aviation Technological Leap : Airlines and aircraft manufacturers have little recourse but to respond to these disruptions with innovations of their own, of which the only compelling possibility is to have each journey take far less time.  It is apparent that there has been little improvement in the speed of passenger aircraft in the last 40 years.  J. Storrs Hall at the Foresight Institute has an article up with a chart that shows the improvements and total flattening of the speed of passenger airline travel.  The cost of staying below Mach 1 vs. being above it are very different, as much as 3X, which accounts for the sudden halt in speed gains just below the speed of sound after the early 1960s.  However, the technologies of supersonic aircraft (which exist, of course, in military planes) are dropping in price, and it is possible that suborbital passenger flight could be available for the cost of a first-class ticket by 2025.  The Ansari X-prize contest and Space Ship Two have already demonstrated early incarnations of what could scale up to larger planes.  This will not reverse the video-conferencing trend, of course, but it will make the airlines more competitive for those interactions that have to be in person. 

So we are about to see a cascade of disruptions pulsate through the global economy.  While in 2009, you may have no choice but to take a 14-hour flight (each way) to Asia, in 2025, the similar situation may present you with a choice between handling the meeting with the videoconferencing system in your home office vs. taking a 2-hour suborbital flight to Asia. 

This, my friends, is progress. 

Wolfram Alpha : The Birth of Web 3.0

The Wolfram Alpha engine is set to be launched.  Rather than a search engine, it is an 'answer engine' that interprets actual questions and answers them in accordance with their intended meaning. 

Here is a video demonstrating the Wolfram Alpha engine. 

I have written about the Semantic Web back on June 11, 2007.  The Wolfram Alpha, at first, will seem rather underwhelming, and will merely enable high-school and college students (as well as bloggers) to conduct their research more easily.  But as refinements accumulate and users go through their own learning curve, we could see a major transformation in Internet usage starting around 2012. 

The Wolfram Alpha will be the first mainstream experience of the Semantic Web, much as the launch of the Netscape Navigator browser in late 1994 heralded the arrival of the World Wide Web to the mainstream.  The launch of the Wolfram Alpha will be a similar moment in technological progress, and while it will not be as much on an incremental jump in user experience as Netscape Navigator was, consider that when Netscape Navigator was launched, it could only be accessed by desktop PCs, as there were virtually no laptops and mobile phones in 1994.  Furthermore, countries like India and China did not even have more than a handful of desktop PCs at the time.  But today, in 2009, there are devices of many shapes and sizes, across many countries, than can access the Wolfram Alpha on the first day. 

This does not mean that Wolfram Alpha will be the most successful Web 3.0 product.  Recall how Netscape failed to win the marathon despite the early dominance, and how Google surpassed earlier search engines like Lycos, AltaVista, and Yahoo.  The technology, and the trends underlying it, always supercede any one company or individual. 

Thus, we have arrived at the start of the third chapter of the Internet age.  Web 1.0 (the information web) ran from 1991 until 2001.  2001-03 was a nuclear winter for the Internet, which ended with Web 2.0 (the collaboration web) that ran from 2003 until 2009, and Web 3.0 (the semantic web) will begin now, in May 2009. 

The End of Rabbit Ears, a Billion More Broadband Users - Part II

Three years ago, I wrote about the end of broadcasted television signals through the air on February 17, 2009.  It was one of the earliest articles here on The Futurist, and we have now arrived at the date when this transition will take place. 

In the last 3 years, we have seen the Apple iPhone (now in a 2.0 version), as well as broad deployment of 3G service to cellular phones.  Neither were available in February 2006.  But these are small increments compared to what access to the previously unavailable 700 MHz spectrum will give rise to.  The auction for the spectrum fetched $19.6 Billion, indicating how valuable this real-estate is. 

Signals sent at this frequency can easily pass through walls, and over far greater distances than signals in higher frequency bands.  More importantly, since wireless is the dominant (and often only) means of Internet access in many developing countries, the innovations designed to exploit the 700 MHz band in the US will inevitably be modified to supercharge wireless Internet access in India, Latin America, and Africa.  An additional 1 billion broadband Internet users in developing regions will be connected by 2013, as predicted in Part I of this article.  There are few technologies that can help pull people out of poverty so quickly. 

In the depths of a recession, the events that spark the next expansion arise almost unnoticed.  WIthin 24 months of this event, there will be a vast array of exciting wireless products and services for all of us to enjoy.  Remember that today, despite the economy being in its darkest hour, was the day that it began. 

Surfaces : The Next Killer Ap in Computing

Computing, once seamlessly synonymous with technological progress, has not grabbed headlines in recent memory. We have not had a 'killer ap' in computing in the last few years.  Maybe you can count Wi-fi access to laptops in 2002-03 as the most recent one, but if that is not a sufficiently important innovation, we then have to go all the way back to the graphical World Wide Web browser in 1995.  Before that, the killer ap was Microsoft Office for Windows in 1990.  Clearly, such shifts appear to occur at intervals of 5-8 years. 

I can, without hesitation, nominate surface computing as the next great generational augmentation in the computing experience.  This is because surface computing entirely transforms the human-computer interaction in a matter that is more suitable for the human body than the mouse/keyboard model is.  In accordance with the Impact of Computing, rapid drops in the costs of both high-definition displays and tactile sensors are set to bring this experience to consumers by the end of this decade. 

BusinessWeek has a slideshow featuring several different products for surface computing.  Over ten major electronics companies have surface computing products available.  The most visible is the Microsoft Surface, which sells for about $10,000, but will probably drop to $3000 or less within 3-4 years, enabling household adoption. 

As far as early applications of surface computing, a fertile imagination can yield many prospects.  For example, a restaurant table may feature a surface that displays the menu, enabling patrons to order simply by touching the picture of the item they choose.  The information is sent to the kitchen, and this saves time and reduces the number of waiters needed by the restaurant (as waiters would only be needed to deliver the completed orders).  Applications for classroom and video game settings also readily present themselves. 

Watch for demonstrations of various surface computers at your local electronics store, and keep an eye on the price drops.  After seeing a demonstration, do share at what pricepoint you might purchase one.  The next generation of computing beckons. 

Related :

The Impact of Computing

More on the Upcoming Internet Gridlock.

MIT Technology Review has a 6-page article detailing the imminent choking of the Internet under increasing bandwidth volume.  This follows my post from March 13, 2008 about the continued rapid growth in Internet traffic due to video applications. 

While everyone worries about the daily rise in oil prices (which I contend has many unnoticed positive side effects), there is far too little attention given to the upcoming Internet slowdown.  It has just as much potential to hinder commerce as higher energy prices, and a fast, uncongested Internet even has a direct role to play in cushioning the impact of higher energy prices through enabling the advance of high-quality video conferencing technologies.  Read much more about the relation between oil prices and Internet bandwith demand in my article Terrorism, Oil, Globalization, and the Impact of Computing. 

Of course, just as anyone who bet on the rise in oil prices could have profited by taking a position in any number of exchange-traded energy securities, similar opportunities for profit abound from the upcoming bandwidth scarcity.  Cisco Systems (CSCO) would be the most obvious beneficiary, but a number of smaller companies also present opportunities.  More analysis on these will follow in coming weeks.