Standing on the Sun. Christopher Meyer
technology arrives, “we expect too much in the short run, and too little in the long run.” We've been through the former. The dot-com bubble was an expression of faith that “The Internet changes everything”—a belief that proved premature. It was succeeded by a Dark Age. Following the 2000 dot-com bust, there was a certain amount of relief on the part of those who chose to believe that the Internet was much ado about nothing—until Google's phenomenal stock performance, starting in 2004, turned geeky talk about “Web 2.0” into an “eyeball bubble,” driven by social networks, with investors eager to buy in to the new world of advertising-supported business models.13
Now the long run is arriving. It's not about better targeting of marketing. Rather, it's about the democratization that was promised at the dawn of the Web, because, as promised, information technology is empowering smaller economic entities—including individuals.
Three current developments really do have that power. Cloud computing is one, because it changes not only the economics of data storage but also the risk profiles and capital requirements for new businesses. The mobile Internet device is another, because it allows rich information not only to be received but also to be created and transmitted by anyone, anywhere. And what has been referred to as “the Internet of things” is a third, because it allows remote and dispersed phenomena to be sensed and reported and because it automates another class of labor. Each of these trends can be and has been explored at book length, and there's no need to do full justice to them here. We're interested only in the ways they change capitalism.
Cloud Computing
Cloud computing gets its name from the fact that the computing power that firms rely on to operate needn't be on the ground at their own facilities. It can be “out there” somewhere, accessed via the Internet and purchased on demand from vendors like HP and Amazon.
If this were just outsourcing to take advantage of scale and specialization it would hardly be a new story for capitalism. Two benefits of cloud computing are more subtle. First, it lowers the barriers to innovation. If you have a new, information-based business model, to have to set up an IT infrastructure to prepare for customer number one is a big burden. To be able to buy computing power economically “by the sip” removes it. Before electric utilities, every company needed its own source of power. After they arrived, companies could use electric equipment without that investment. In 1982, when Xerox invented Ethernet, it had print ads showing a jack in the wall labeled “Information Outlet,” illustrating that someday you'd plug in (how quaint!) to a network and get all the information power you needed. Now it's happening.
The second benefit cloud computing brings is illustrated by Salesforce.com, one of the first apps to run in the cloud. Its experience shows how the cloud can bring true Web 2.0 value to apps; the many companies who use its sales management tools not only pay for the privilege, their usage helps to extend and improve the software's capabilities. Salesforce.com learns from everyone and makes that learning available to all. In general, shared information systems not only cost less than a population of proprietary systems, they encode more knowledge, and learn faster. This continuous, cloud-based learning takes us a long way from the architectures installed in the 1990s by big systems integrators, whose strategic mantra was “design, build, operate.” When the firms for which they used to deliver their walled-garden solutions opt for the cloud instead, few are able to gain a proprietary advantage through IT, but all benefit from a more rapid diffusion of innovation.
We'll return to this theme—the creation of platforms for continuous learning—in chapter 8, when we look at firm-level implications of capitalism's evolution. For now, let's move on to another technology with transformative power.
Mobile Internet Devices
Mobile Internet devices are important because they represent a tipping point in the world's access to shared information—and they produce a lot of it as well. The idea of providing everyone on Earth with a laptop has been superseded by the explosive growth of smartphones; Gartner reported that third-quarter 2010 sales of the devices were 96 percent higher than in 2009. Internet-connected phones have been a cool development for technophiles in developed economies, who can now layer browsing and snapshooting onto their calling and texting. But it's been a crucial development in emerging economies, where the value delivered previously had not reached the threshold to justify the purchase. The breakthrough performance of mobile Internet devices ensures that they will become ubiquitous and that ubiquity in itself will become the story as the network they combine to create becomes the prevailing information infrastructure.
Already, cell phones have become the safest and most convenient means for individuals to transfer funds in many parts of Africa, simply because the devices have the capability and are at hand. In Bangladesh, entrepreneur Kamal Quadir has created CellBazaar, a market along the lines of Craigslist, to connect buyers and sellers, and has chosen to base it on a mobile device platform. (Yes, Kamal is Iqbal's brother.) In Katine, Uganda, farmers use phones to check prices, and, armed with market information, they band together to eliminate predatory middlemen.
What does this mean for capitalism? If gaining access to functioning markets is as simple as using a handheld device, a whole class of potential entrepreneurs who were sitting on the sidelines will now be in the system and helping to shape it, at the expense of those who have used their capital advantage to extract value. The economic value of this connectivity is conveyed by this statistic: although the emerging economies' income per capita is about one-ninth of the G7's ($3,000 per year versus $28,700), the penetration of mobile phones is effectively the same—76 phones per 100 people, versus 76 per 109. As ubiquitous mobile devices increasingly promote transparency and inclusiveness, expect them to have an impact on many industries beyond banking, including media, medicine, and education.
The Internet of Things
The advent of a new Internet of things is a third, fundamentally important change in capitalism's environment. Using a combination of miniature connected sensors and radio frequency identification (RFID) tags, inanimate objects become collectors and transmitters of data. If you put the right kind of sensor on a bridge, for example, it can detect movement that falls outside acceptable parameters and is therefore a sign of deterioration. If you give it the ability to transmit that data to the Internet, the need for maintenance can be spotted by engineers remotely. As we explore in chapter 3, that ubiquitous sensing capability changes the rules for capitalists because it makes the effects of their activities visible to the broader society. Impacts they used to think of as externalities become increasingly measurable and attributable.
If capital is defined by ownership and markets, it seems technology is changing both. Already 5 billion of the world's 6.9 billion people have cell phones. The next generation of IT will be cheaper again.14 So markets will become much more connected, arbitrage more challenging, bottlenecks more difficult to create. We've seen this in the case of labor markets, where connectivity has shifted demand for everything from radiologists to call center operators from the United States to India.
And for some people, IT will take much of the need for capital out of capitalism. More efficient use of equipment, pay-by-the-seat information systems, access to intellectual capital that used to be a corporate asset—all these trends favor and empower the small business and individual. It appears that the revolution is finally arriving—and it's profitable!
And back to poor Jack Ablin, our Chicago investor. Happily he's not poor any more: P&G recovered fully from its share-price tumble. But the rollercoaster ride he took is another property of the new world. Its intense interconnection makes for unpredictable volatility. It creates the preconditions for an explosion of innovation, and that's what we expect. But it also creates the risk of other kinds of cascades, some of them potentially catastrophic. The cascading power blackouts in the northeast United States in 1965 and the one-day Dow Jones Industrial Average loss of 23 percent in 1987 were both the results of connected system components (in one case circuit breakers, in the other programmed trading instructions). The Internet of things,