Chaotic Change

The Age of Reason, the Enlightenment and the Industrial Revolution were enabled by rationalist enquiry, the scientific method in modern nation-states (in the social & political sense) and technological innovation married to financial capital. Economic growth lifted billions out of poverty and enriched billionaires, propelled by globalised sourcing, production and consumption (occasionally interrupted by regional and world wars). However, it has also come at a terrible cost: global climate change and a highly destabilised world order.

First scientifically then economically, the ancient worldview of religions and monarchies was replaced a more clockwork model of the universe and a mechanistic view of political economy. Everything became quantified, measured, modelled and predicted. Science and technology, profit and loss, citizen and government essentially became a numbers game. Without mathematics, modern science and the technological marvels that come from it are simply not possible. Without mechanisation of commerce and agriculture, today’s economy could not exist. Politics is often called a matter of “having the numbers” in the sense of elections and parliaments. 21st century finance is impossible without digital technology.

Yet the mathematics – often at the more abstruse end of the scale – reveals two shattering truths that depart from the widely-assumed predictable cause-and-effect mindset. First, there is Godel’s Theorem, which states that inside any consistent set of rules there are undecidable questions. Second, there is complexity theory (sometimes known as chaos theory) which finds that small causes can have very large and essentially unpredictable effects that depend critically on initial conditions. The former renders our quantitative and mathematically-driven worldview incomplete; the latter, far less predictable than we’d like to believe.

Godel gets attention in philosophical and academic mathematical circles. Chaos theory gets a lot more attention in other circles. Both are important but complexity theory has been more widely applied. It turns out that all sorts of things are chaotic – from the behaviour of the atmosphere to the rise and fall of empires. The more complex something becomes – like the modern world – the better it is described by the theory. Anthropogenic climate change and, I submit, the destabilising world order are both things of extreme complexity (in the mathematical sense of the word as well as the colloquial). Seemingly very small inputs in the right initial conditions can have very large and unanticipated outcomes that are difficult if not impossible to predict.

Complex systems can exhibit very long-lived behaviours which appear stable. On the timescale of a human lifetime, they appear mechanistically deterministic in nature and entirely predictable in character. Weather is like that, although its balance and equilibrium can be “punctuated” by tipping point events. Social, economic and political phenomena can be like this too. The business cycle is probably the best known of these. To the extent that it can be forecast, human behaviour in large groups is like this too. Advertisers make use of this. But every so often, these stable things destabilise in response to relatively small events in a “butterfly effect” way. Some say that the assassination of Archduke Franz Ferdinand by a Bosnian nationalist at Sarajevo in 1914 was one such event. Many say some volcanic eruptions have caused worldwide climate conditions in the past. After a very long time of stability something small over there seems to cause something much larger to change all over the place in an unforeseeable way.

Today, these two complex systems – climate and the world order – are forming positive feedback loops. Climate change and national security are now linked in the minds of many scientists and defence planners. A drought in northern Syria is often cited as one of the reasons why there is war there and why so many displaced people have fled the region. More broadly and on a longer-term scale, there are many who say the Sykes-Picot agreement and the ensuing Treaty of Sevres is one of the reasons why there is so much unrest in the Middle East. Two bureaucrats drawing a red line destabilises a world region after centuries of apparent stability. The recent quarter-century of war is merely the latest of a series of conflicts. Severe storms and droughts of recent years are being linked to made-made climate change that, by all accounts, started during the Industrial Revolution in the 18th century in England. The European Union – an idea that can trace its origins back to an idea of Napoleon’s and its reality to the post World War Two reconstruction period – seems to be under threat by Brexit. Threat of climate change is driving the adoption of sustainable and renewable energy sources in the EU and UK. The UNFCCC’s Paris Agreement on Climate Change involves almost 200 nations. Most importantly, China and India – 2 of the largest polluters other than the US – are committed to this endeavour. 93 nations have now ratified the Paris accord and have to live up to their declared targets.

We live in times of chaotic change. The future of the planet – climatically, politically and socio-economically – is in the balance. The 2016 American presidential election may play an outsized role in this matter. The survival of the EU certainly will. Events in the South China Sea add more uncertainty. The melting polar ice packs do too. Shifting climate patterns around the world will affect billions in ways that the Syrian crisis have displaced tens of millions. Populist xenophobic nationalists leaders and movements are emerging elsewhere than the US and UK. The world is interconnected in all sorts of ways and small events can lead to extremely large outcomes. The atmosphere and oceans are common to everyone driven by global currents, not national borders. The global economy is as integrated as never before yet the spoils are very unequally enjoyed. Those lifted up and those left behind are not happy with each other. Difficulties arise and our social and political institutions are challenged by the times. The future is uncertain and in many ways troubling. I hope we can deal with it all in time but I fear many, many things need to change before we can meet these challenges.

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Looking Back on a Decade of Change

In a few days time, this blog turns 10 years old. The changes in the world have been startling, dramatic and far-reaching. The Global Financial Crisis redefined the world economically. Smartphones and Cloud computing have changed the world in many, many ways. China’s influence and Islamist fundamentalist conflicts have changed the world in many other ways. Now it’s time to look back so we can look forward again.

Perhaps it’s hard for many people to even recall a world without Facebook, iPhones and Android phones. Those things have become woven into the fabric of everyday society – and not just in the rich developed nations. Maybe some yearn for 2006, before the GFC. Sometimes we forget what life was really like a decade ago, particularly if we think life is much better now. But not everyone is better off today than they were then. Millions of displaced people in Europe and the Middle East immediately come to mind. To a lesser extent, the “working poor” of the hollowed-out middle class do too.

None of these things happened overnight. Most of them were a direct result of many things that happened well before 2006. Consider the online world. Even Facebook was alive and well in the dorm-rooms of Harvard in 2004. Social-networking, in the form of LinkedIn, was up in 2001. “Smartphones”, in the form of a big Nokia brick that folded in two, were available in 2000. The Internet can trace its roots back to 1969 and the Web to the early-90s. PC users started to go online in the modern sense of the term in the mid-90s. The developments of wireless broadband technologies go well back before the advent of smartphones and tablets. WiFi was invented here in Australia in 1990.

The GFC was well and truly in the making well before the events of 2007 and 2008. Some say revoking the Glass-Steagall Act in 1999 was the “cause” of it all. Reckless and risky securitisation of sub-prime mortgages went on for years, particularly in the US. Regulators like the SEC seemed to do little to constrain or prosecute infractions of perfectly suitable and adequate regulations at the time. Credit-ratings agencies seemed fast-and-loose with their assessments of the quality of the “investment-grade” products they certified. Governments and businesses alike seemed very content for years before the crisis to continue on their merry way. As one of the movies about the behaviours in Wall Street and Washington put it, “…everyone was making money”.

Today, everyone is talking about China. The focus seems to be all about slowing down, transitioning from export manufacturing to domestic consumption and how the State communicates with the market. There’s also a lot of talk about corrupt officials being prosecuted for their misdeeds in times gone by. All of these things have their origins well before 2006. “Socialism with Chinese characteristics” was devised in the late-1970s. The export manufacturing boom was well underway in the 1980s and 90s. The transition to consumption and services from manufacturing and exports has been more recent but on the cards for well over a decade. The exposure and punishment of corrupt officials is very much a thing of President Xi’s administration but the corruption itself has been going on for a very long time indeed. Chinese intervention in the markets is as old as Communist rule in China. In the last 10 years or so, liberalisation of markets means the government needs to communicate better to avoid surprises. In today’s globalised world, even the Chinese Communist Party can no longer “control” things as they once did.

The struggle of Islamist fundamentalism is, of course, much older. In the modern sense of the struggle, events in Egypt in the 1950s and in Iran in the 1970s gave birth to new political regimes. These were either nationalist first (as in Egypt) and Islamist second or theocratically Islamist (as in Iran) and nationalist second. The two Gulf Wars and the War on Terror go back a quarter of a century. There have been a broad spectrum of similar but different developments throughout the region from Pakistan and Afghanistan in the East to Algeria in the West over the last 70 years. After WW II, the British abandoned both Egypt and Palestine. Gadaffi ruled Libya for decades before his assassination more recently. The Muslim Brotherhood was marginalised by Colonel Nasser in Egypt in the 1950s. The events of the last ten years – the Arab Spring, the war in Syria and most hideously, Islamic State – are just the most recent episodes of this strife. Some say the conflicts go back to the Crusades almost a thousand years ago.

What’s essential about the last ten years is the speed and intensity of it all. From 2007 to date, since the launch of the iPhone, there are now almost 3 billion Smartphone users worldwide. They have unprecedented access to services over widely deployed infrastructure. The GFC happened with lightning speed globally, largely due to the widespread reach of the securitisation chain, global financial services, very high interconnectedness of markets and economies and the technology that finance depends upon. China was inextricably linked into the global economy and to the North American and European nations particularly. Professor Ferguson coined the term “Chimerica” to refer to the deep interdependence between the Chinese and Americans. Electronic commerce flourished spectacularly fast over the last decade, much to the detriment of established businesses in many sectors and markets. Social networks tied together over a billion people in a matter of years. This changed the dynamics of the Arab Spring, news media more generally and accelerated events on the ground. All in all, things moved faster and harder in all sorts of ways and places.

Digital is now a noun, as well as an adjective (much as Google became a verb before that). But as an adjective, it is most prominently used in the phrase “digital disruption”. It is used in all sorts of contexts – businesses of all kinds, government, not for profits and others. It means to have reach from inside an organisation directly to the external stakeholders – customers, citizens and the like. It means speed. It often means new business models and a new mindset. It most visibly means having a app on a smartphone that lets people outside the organisation interact with the organisation very quickly, simply and easily. It means being agile and responsive to changes outside the organisation on the inside. It changes the way people work and what they do for an organisation. But whilst Digital is a prime focus today, it wasn’t born within the last ten years.

In 1986, Sam Walton (of WalMart fame) bought a special kind of computer that could answer queries put to large amounts of data quickly. He hooked it up to his procurement and sales operations. Then his suppliers started using it to find out where (which store) their products were being sold, how many and when. Then they went there and replenished the stock on the shelves directly. No inventory people, no warehouses, no procurement people. Direct business-to-business electronic commerce. It was a real coup. At Christmas time, the sales of seasonal merchandise (Christmas stuff) would be monitored in real-time and discounted, store-by-store, to clear the stock. Today we call that Big Data operations analytics. Another coup – WalMart could get rid of most of the Xmas stuff before Christmas.

What was a good idea at WalMart 30 years ago in the US has now become part of the conventional wisdom for almost everybody throughout the developed world. Mobile, cloud, big data and social networking are sufficiently mature and deployed today to make it so. But business and government is still struggling to become more Digital. It’s because they have to change inside – like WalMart did – as well as outside – like WalMart’s suppliers did. That kind of change is hard and needs extreme levels of mandate, sponsorship and lots of resources. It also needs smarts – good ideas about why, what and how. It needs different kinds of people, not necessarily the ones who are already there. Above all, it needs leadership – and that’s in short supply and high demand these days. Sam Walton was not an IT guy, he was a retailer. The innovation was only partly technological. It was mostly operational – doing things a different and better way because technology could enable it.

This itself is not a new thing. Technological innovation and financial capital have been enabling this kind of change for 250 years, as the first post of this blog said. What is telling about the last ten years is the speed of the change, the reach of the change and how profoundly it will impact the world going forward. Some people are very worried about this (but they have been before). The worry is not so much about speed, reach and depth being undigestible (as it occasionally has been before). The concern this time is over Digital being a “survival event”. It’s about if you don’t go Digital and quickly, your organisation might not make it at all. Some people worry about the next economic downturn – with opinions varying between GFC Mark 2 and something less dramatic. One thing is for sure, it will be faster. Some people worry about the next cycle in Professor Perez model (likely to be centred around clean energy). That is probably going to happen faster too and be very profound. That’s probably the ultimate survival event. Many worry about conflict between China and the US. But that’s something that deserves an entire blog post.

New ways of doing things will emerge across the board. They’ll emerge more quickly. Things will get faster. It’s almost inevitable. Coping with speed will be difficult, particularly for the change-resistant ones. But that’s happened before too. Maybe this time, we can be more aware of the downside consequences of the changes. Lots of people were hurt in the GFC. Many have been displaced in the Middle East. Ironically, many IT workers have been rendered either unnecessary or unhelpful by the Digital revolution. If history is any guide, there are always casualties to change. But this is not World War Two. But it’s not bloodless either.

New ways and means always benefit some people – this time, it seems the beneficiaries are fewer and fewer. Sam Walton was not only a folksy retailer who drove a Chevy pickup and dressed out of his stores. He was a billionaire plutocrat who founded a dynasty of billionaire plutocrats. In the technology sector, there are many such billionaire founders. Some of them have turned to philanthropy. But that does not spread the income, wealth and benefit the way it did in America and other places after The War. People in the US still remember that. In very different ways, both Donald Trump and Bernie Sanders are appealing to those who remember when America was a “great” country. God help us all if either of them gets elected. I never thought I’d say this, much less write it publicly: I’m endorsing Hillary Clinton for President. Maybe she can find a way through all this. Of course, that’s something that has not changed in the last 10 years. Hillary for President…

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Religious Resistance to Technological Change

Over recent times, say the last several years, the technology industry has been extremely disrupted by profound change, to say the least. The shift to mobile from personal computers is only the most visible part of the deep changes behind the scenes. Cloud, Agile, Big Data, Social, the gig economy, the VC activity in Silicon Valley and several others have transformed the way the technology industry operates. Older, more established players have been dragged kicking and screaming into the new world. Newer, more energetic ones have seized the opportunity to become leading players.

To characterise this shift, consider four classes of leading firms:

  • Tech titans of yesterday, like IBM and HP, who are now changing their ways,
  • Established companies, like Apple, Amazon and Google, who drove the change,
  • PC-era firms, like Microsoft and Intel, who followed fast and come out on top,
  • New players, like Facebook, Twitter and LinkedIn, who leveraged the change to win.

Each of these considerable enterprises have very different constituencies: legions of followers, many of whom adopt an almost religious dedication to the products, services and (most importantly) the world-view espoused by these providers. To those of us in the industry, they provide professional ecosystems within which we circulate. To their customers, they provide a set of solutions and a “sticky” relationship that, once adopted is difficult to move away from. Many people associate with one or other “camp” – think “I’m a PC, you’re a Mac”. Fierce loyalties are formed to one or another brand. Evangelists garner followers with almost missionary zeal. Many brands inspire an almost religious dedication amongst their followers.

With the changing fortunes of profound and extreme change, some “win”and some “lose”. Some change and some do not. For the loyalists beset on all sides by an emerging new and very different future, there is a temptation to become reactionary. Some of the more extreme long-time disciples of established tech “religions” equate abandoning their following with some perverse form apostasy. Many of the moderates in established camps recognise, as John Maynard Keynes put it, “When my information changes, I alter my conclusions”. Well, things have changed and many religious technology zealots are feeling threatened.

Some of the behaviours this engenders are very unpleasant. Long-time friends and colleagues can fall-out with each other, sometimes explosively. Once rational and civilised conduct becomes one-eyed devotion; the kind of things you see with sports fans and cultists. Sometimes, these people’s employers demand that they adopt the tools and techniques of the new era. Some of these people refuse. Conflict and consequences ensue, often with rather dire results for the reluctant to change. Sometimes, especially from some of the older, more long-standing followers of one or another camp, it can abruptly end their careers. At the most ridiculous extremes, leading practitioners of yesterday’s world explicitly choose not to change and ride the long-tail of ever-diminishing opportunity into some sort of technological retirement.

These behaviours are not theoretical sociological assertions. They are clear and present to be seen and heard by anyone with eyes and ears. I’m sure I’m not the only one who’s experiencing this. After all, Luddite behaviour is nothing new. But this sort of behaviour is particularly ironic from Information Technology professionals who have, for the most part, foisted change on their customers, stockholders, users and many others for a very long time. Some of these people get socially and professionally “unfriended” in the process. Friends don’t talk to each other that way. Most people don’t suffer that kind of behaviour well. The hatred and mindless anger it represents is particularly unnerving to anyone with a more moderate view and less emotionally-charged persona. Sometimes, it leads to the kind of behavioural violence that’s more associated with political extremism than professional conduct.

For the most part, people have adapted to the new order of things. Most people use their mobile devices more than their personal computers. Many people – whether knowingly or not – use Cloud services. Well over half the online community uses social networking. The amount of data generated by all this is staggering. But it hasn’t stopped large enterprises and government agencies using mainframes and mid-range computers to run their operations. It certainly hasn’t eliminated people from using PCs and Macs at work and at home. If anything, Digital initiatives at work have enhanced all those things with new benefits. However, there is a very sharp divide between the Digital world and the traditional world of professional IT. Whilst many IT traditionalists use the new technology, many of them (probably most) don’t really understand it. For their part, many Digital practitioners have a very low opinion of most traditional IT.

So, getting back to the four classes of leading firms: what about IBM and HP (and their ilk)? They are, as the politically-correct vocabulary goes, companies in transition. They all have some sort of Cloud business. They have a “presence” or “partnership” in mobile. To one extent or another they all have “big data” offerings. And, almost unthinkable only a few years ago, many of them have active relationships with social networking firms. Some of them, like IBM, have morphed traditional products, like their newest System Z mainframe, into Cloud products. Others, like HP have decided to hive off big parts of a once-larger firm into separate firms. Imagine being a person who worked at a place like IBM or HP all their working lives. What extraordinary change they must be experiencing now. Some deal with it very well. Many do not. It must be extremely difficult for the latter.

What about Microsoft and Intel? They are fascinating to look at these days. As a former-Softie of more than a decade ago, it’s been a wild ride to observe from the outside as an alum. There are two Microsofts and two Intels. The Cloud business is going gangbusters for both Microsoft and Intel. The mobile business has been a disaster for both of them. Intel more than Microsoft have benefitted from big data. Microsoft has materially benefitted as an early-stage investor in Facebook, but that’s about it. Imagine being a 30-year employee at Microsoft. They’ve experienced the journey from the DOS PC to the present day in one career in one company. For those that have adapted along the way (and I know some of them), what an extraordinary privilege to have been on the journey. But I hear much more about old-Microsofties who haven’t adapted well and are really struggling.

What about Apple and Google? Here is the instructive thing: they are as different from each other as the two of them are from any other enterprise. Steve Jobs remade Apple and did so very well. Larry Page and Sergey Brin (together with Eric Schmidt) made Google and have only recently restructured it into Alphabet. There are people at Apple who have been there 20 and 30 years, and what change they must have seen! Larry and Sergey have been at Google since 1998 (almost 17 years now) and ridden the wave from obscure startup to one of the most powerful and dominant companies in the world. But not many people last very long at Google. Apparently, it’s just too hard. Many leave to go start up other companies. The best and brightest – like Marissa Meyer and Sheryl Sandberg – show up as leaders in other firms like Yahoo and Facebook. But Apple and Google are at the very top of their game at the moment. So there’s an awfully good reason to stay.

Amazon is unique. Much has been written about what it’s like to work at Amazon lately, so I won’t go there. Many of my ex-colleagues from Microsoft work there today, mostly in the AWS division. They are a born-in-the-cloud company whose rise and rise to dominance in the ecommerce and Cloud businesses are legendary. Jeff Bezos is unique. He is rightfully in the pantheon of business giants like Gates, Jobs and only a few others. His senior people are extraordinarily far-sighted and seem to adapt to likely futures before they arrive whilst changing the world at large in so doing. They are famously unconcerned with profit (which itself is almost unique) at the same time as being obsessed by growth (which is much more common). There are only a few who’ve survived 20 years at Amazon. I imagine they are all very tired. There are a few things that have failed at Amazon – like the mobile phone. I imagine those folks are not very happy. But for the most part, however long you last and in whatever part of the company, there have been many wonderful Amazonians – past and present – over the years. They are not change-fatigued. They are not angry (even if the New York Times wants to portray them so). Apparently, it’s difficult to “survive” at Amazon, but I dare say that’s true in many wild successful firms.

Finally, what about Facebook, Twitter and LinkedIn? From the little I understand from the inside, all 3 of them are great places to work. But they’re all classic examples of startups that have exceeded the critical mass to remain startups. They all have extremely strong cultures, which is likely to help them all transition to become even more successful larger businesses. Of the three, Facebook is the one to watch. Zuckerberg and Sandberg are forging one of the very few complete new-style companies. They are, first and foremost, a born-in-the-cloud social network. But they are a huge player in mobile and probably the biggest big-data company on earth. Nobody is sure where this will lead. One thing is sure, almost nobody predicted that they’d be where they are by now. So, even for Twitter and LinkedIn, Facebook is the benchmark of the new order of things. They are inherently Digital. They are quintessentially social. They are inextricably Cloud and predominantly mobile. They have data assets of well over a billion users approaching 100 Petabytes.

I feel genuine optimism for the future of technology. I’m hearing very encouraging things that auger well for traditional IT in the PostPC Digital world. I see the religious camps and some of the bad behaviours and feel genuinely sorry for those who can’t or won’t cope. I see and hear all the pain of change from within the established players. I marvel at what the leaders of the new order have achieved to date. I wish them well for their futures because I really think they’ve changed the world for the better. Sometimes, I wish I could help the staunch followers of the religious sects in tech that are going through personally challenging times. I tried to with two long-standing friends and failed dismally. But I don’t think that was any fault on my part. The hardest thing to do is help someone change who doesn’t want to change. Sometimes, it’s just impossible…

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The Changing Expectations of Annual Change

Consumer electronics like smartphones have been operating on a yearly product cycle for some time now. The winners in this game – like Apple and Samsung – choose this time of year for their new product announcements, largely to provide for the “holiday” buying season before Christmas. It’s become an expected annual event. Sometimes the changes are incremental, other times there’s some major step-change. At Apple at least, there’s a distinct seasonality to their business model driven by this yearly rhythm. The December quarter results typically outshine all the others.

About 10 months ago, Tesla Australia transitioned from being a low-footprint importer to having a more fully-fledged presence down under. Around that time, they let me test-drive the Model S. Around the same time, they announced an enhanced version of the car with two motors giving it all-wheel drive. Several other features were also announced. Importantly for Australian customers, the Supercharger network deployment plans were also published.

Over the months since then, the products, services and infrastructure have been rolled out across the world. Tesla showrooms, service centres and charging facilities cropped up here in Australia as well as many other places in the world outside the US. Major announcements about Tesla’s battery products drew enormous media attention and extreme launch-day demand. Over-the-air updates to existing cars, like the “Ludicrous Speed Update” were released. The excitement and marketing hype was extensively covered by the worldwide media.

Last week, the AWD product was launched locally to much fanfare. Instead of showing up to a downtown hotel to get a test-drive, I went to a nearby showroom. So did my father, a retired auto executive. We went to different locations: one in the inner-city for me, the other out in the suburbs for Dad. We had fundamentally different experiences: Dad had a short first-time drive while I had a longer second-time go. Dad’s been driving the locally-produced GM product for over forty years, I’ve been driving BMWs and Audis for the last thirty years. Most importantly, I was there to see what had changed in the last year where as Dad was there to see what all the fuss was about at all.

One thing we had in common was that our expectations were far-exceeded. The difference between the extensive research we’d both done beforehand and direct experience was extraordinarily positive. For me, there’s been lots of technology – automotive and otherwise – where the announcement and the experience happened inside 12 months. For Dad, not so much. The world of IT and the world of cars ran at essentially different speeds. Most impactfully, Tesla said that they would be at this stage in their development here in Australia about a year ago. They are, if anything, a bit ahead of schedule. I didn’t expect that at all and Dad certainly did not.

This is not something even Tesla is well-known for: there have been delays before. The forthcoming Model X – an SUV form factor based on the Model S – is much anticipated. The release of the vehicle has been postponed time and time again. It’s meant to be available sometime before Christmas in the US and later according to a worldwide rollout schedule. As always, Australia will be some time afterwards. But Tesla are not alone in this respect. Technology firms and many companies in many other industries have a pre-announcement syndrome that invariably disappoints.

What’s changed my expectations of what can happen in a year is coloured by the accelerating pace of change in the technology business. But the delivery of Tesla’s declared plans of last year down here have been spectacularly successful. Driving a 2-ton, 5 metre long car like a Ferrari in “Insane Mode” is quite unlike anything I’ve ever done before. Seeing the Superchargers around, witnessing the pop-up showrooms in shopping malls is something I expected. Seeing dedicated service facilities in the inner-city was not. The sensation of 0-100 km/h in 3 seconds rather than 4 seconds is much more than a dry and analytical “25%” cold ever convey. Feeling it rather than thinking, reading and talking about is the main difference.

It seems the car business really is changing. Everyone in the up-market segment from Aston Martin and Audi to Mercedes and BMW want to become more like Tesla (and, I suspect, like Apple). The acceleration of the change along these lines over the last year is clear and plain to see. Car dealers everywhere should be worried. Auto manufacturers who’ve yet to place their bets on these new technology platforms may already be too late. For all the attention that Uber is getting, for all the focus on autonomous driving vehicles and all the chatter on flying cars, the greatest change has probably already been accomplished. Many people now expect the kind of yearly change they’re used to in smartphones from everything else, like cars.

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Changes in the Technology Leader Board

Apple is now part of the Dow Jones Industrial Average index, today replacing AT&T. It’s reminiscent of when Microsoft and Intel were added to the Dow in 1999. The changes in the share of market capitalisation over the last 30 years shows this clearly:

20150404_WBC737 These changes reveal a central truth in the technology world. It has emerged from a decade of tumultuous change so that no one firm – or its way of providing technology is dominant. The ramifications are far-reaching. Platform plurality is back. Competition is severe. Continuous delivery of incrementally new and improved devices and services are required. Most of all, business models have changed.

This is indicative of what Carlota Perez calls “Phase 4”, or ‘Maturity’ in her long-cycle economic model:

Screen-Shot-2014-07-24-at-19.29.06

It is a commoditised and largely consumer-oriented form of what used to be proprietary and expensive enterprise-oriented technology. The cell-phone was, ironically, invented in the 1940s by AT&T (Bell Labs). Early cell-phones of the 1980s were expensive and cumbersome business-only tools. Today, an iPhone connected over the public wireless broadband networks can often be more useful than a desktop PC connected over an enterprise’s network and an old cellular “dumb phone” put together . There are more apps, more services, more data and more continuously delivered new functionality than could ever be expected from a company’s (or Government department’s) IT group. The ecosystems have scaled outside the house and onto the streets for everyday ordinary people.

The leading firms have made extraordinary investments over the last decade or so. The business models that fuel these investments are as varied as they can be: Apple does it by profitable sales of devices, Google does it through advertising, Microsoft does it by reinvesting profits from Windows and Office into Cloud data centres and directly making devices, Amazon does it by reinvesting retail surpluses into Amazon Web Services, Facebook does it by selling data about people to marketeers. Regardless of how, the raison d’etre is growth, reach, and most importantly, building a deep ecosystem.

Apple’s ecosystem efforts started in music with the iPod and iTunes over a decade ago. From this base, they projected forward into video content with the Apple TV set-top box. Then came the iPhone which extended the ecosystem into apps. The iPad broadened this into publishing and now the Watch into wearables. The genius of Apple’s ecosystem is its potential for lock-in. The loyalty of the customer base and their unprecedented high levels of satisfaction with the products is a hallmark of Apple’s success.

Google’s ecosystem has trailed Apple’s. If anything, it has been emulating Apple’s approach in more recent times. Controversially, the Android phone platform and the Google Play app store bear more than a striking resemblance to the corresponding pieces of the Apple ecosystem. Google is different in that they don’t make devices and have much lower pricing, which appeals to a broader audience and a far less profitable business model. Their leading device manufacturer Samsung has recently struggled to keep up with Apple’s more vertically-integrated and more profitable model.

Microsoft’s ecosystem has changed dramatically in the last few years. They were renown for being a software-oriented hub of a vast ecosystem of hardware makers with a huge number of business partners. Now Microsoft directly makes phones and has tablets and Cloud servers made for them directly. The latest version of their Surface Pro tablet-cum-PC has sold well. Their Cloud business is growing nicely. Their Lumia smartphones have fared dismally against Apple’s iPhones and the more dominant Android smartphones.

Facebook has a very different kind of ecosystem. At the most basic level, they’ve open sourced the technology of their data centres in the Open Compute project. Something similar is underway in their communications technology. People are adopting Facebook’s infrastructure designs and implementations as a cost-effective way of embracing the Cloud. Facebook has an app ecosystem and an advertising ecosystem too. But in terms of social networking they are head and shoulders above everyone else with almost a billion-and-a-half average monthly users.

Amazon has focussed on selling commodity Cloud infrastructure to a wide variety of customers. Mostly, it’s a pay-as-you-go public Cloud offering. However, more recently, especially in Government, they are making private Clouds. The most famous is the one at the CIA – completely isolated. GovCloud is a shared offering for US Government-only clients. They are starting to enter the world of hybrid Clouds by way of interfacing technologies. Their ecosystem consists of a marketplace of solutions to run in the Amazon Cloud, some partner organisations along the legacy Microsoft model and a few other things.

IBM’s entry into the Cloud, Mobile, Social and Big Data worlds has been belated but successful. They bought SoftLayer and placed on top of it BlueMix. They’ve partnered with Apple on enterprise apps for iOS. Twitter has partnered with IBM for enterprise social networking. But IBM’s big data offering is a natural extension of what it’s been doing in analytics for decades. The ecosystem is unclear and significantly fragmented at the moment. It is clearly a work-in-progress that may take years to complete. Meanwhile, old-IBM is struggling.

These changes – from PCs to smartphones, from servers to Clouds, from email & chat to social networking, from decision support systems to Big Data analytics – are profound. They have already changed the world. They will continue to do so in ways that we probably can’t yet envisage. Wearables like the Apple Watch are already disrupting the watch business. Today, LVMH’s Tag Heuer announced a partnership with Google and Intel to produce a Tag connected watch. Never thought I’d see that in my lifetime!

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Climate Change 2014

President Obama delivered a broad and sweeping speech at the University of Queensland in Brisbane on Saturday where he’s attending the G20 Summit. Fully one-third of it was devoted to climate change and what the US and others are doing about it. Following on from highly significant joint announcements with China in Beijing a few days ago, the President announced a further $3 Billion commitment to the Green Fund to help emerging nations combat the climate crisis. This was greeted with rapturous applause in a standing ovation.

I was struck by how momentous these two events were. For the Presidents of China and the US to release a communique in China at an APEC meeting on ambitious emissions reductions targets is historic. For Obama to follow that up days later in front of predominantly young people with a pledge to pay for poorer nations help too is a symbol of hope and optimism. He said this:

Obama G20 Barrier Reef quote

Never before have the leaders of the two greatest and most powerful nations, themselves the two greatest polluters, announced anything like this. It remains, of course, to see if they fulfil these commitments and deliver the reductions in emissions within the timeframe. The Secretary-General of the United Nations, Ban Kee Moon, publicly proclaimed Saturday morning in Brisbane that Climate Change was “the defining challenge of our times” and that the G20 should focus on it. After more than 2 decades of UN efforts on this issue going back to the Earth Summit in Rio in 1992, this is also the strongest endorsement a UN Chief has given – almost in the form of an instruction to the leaders of the world’s 20 biggest economies.

Earlier this year, the Pentagon announced that climate change is a leading global security issue. While this made news, it was widely regarded as a statement of the long-understood obvious from the environmentalists. Climate change deniers didn’t even bother to raise much of an objection. Insurance companies, not exactly a bastion of left-wing liberal thought or a tabernacle of altruism, have become very vocal this year on the economic effects of climate change. Increased loss due to damaging natural disasters linked to a warming climate – severe weather events, droughts, wildfires and so on – have clearly shown up in their accounts:

Natural Disaster Costs

Alternative energy has also made significant progress this year. There are some poster-child efforts from electric cars (like Tesla) to solar-powered bicycle paths in Holland. But the underlying reality is much broader and deeper. Over 10% of homes in Australia now have solar panels on their rooftops. Rising electricity prices are driving widespread adoption of more energy-efficient appliances. Over 10% of the commuter traffic volumes in and out of the central business district in Melbourne is now by bicycle. Windmills are showing up all over the countryside all over the developed world to augment grid power. Energy-use awareness has entered the common vernacular in many places. Germany and France have widely publicised their very broad adoption of eco-friendly energy production. People are downsizing their cars and using them less frequently in favour of public transportation, scooters and bicycles.

The fight against the climate crisis has started to become a populist movement, particularly among the young and the rich. It’s no longer just cool to be green. Now it’s definitely uncool to be a conspicuous consumer of energy. Populist action at a community level seems to be achieving things that neither legislation or international parastatal organisations could not or did not. No amount of carbon taxation, emissions trading schemes or reports from the UN have reduced actual carbon pollution as much as this people-power movement seems to have done. At the G20 in Brisbane, the President announced that carbon pollution in America is the lowest it’s been for 20 years.

Since I first wrote about Climate Change in this blog 8 years ago, something significant has happened. Citizens and society has moved from a more-is-better attitude to energy use to a better-and-less approach. I can see it in my own household. Six years ago, I drove a car with double the per-kilometre emissions twice as much as I do today. For 15 years prior to 2012, I flew frequently internationally and domestically, on business and on vacation. I haven’t been on a plane for almost 3 years. We bought a new refrigerator the summer before last that uses half the electricity the old one did. Even my father is considering putting solar electricity generation into his 20+ year old home!

Climate Change 2014 is very different to Climate Change 2006. Perhaps the Global Financial Crisis and its aftermath consequences has made more people in the developed world more frugal. Perhaps the political correctness of being green has had an impact. Certainly greener technology has developed in recent years and its widespread adoption has brought prices down. Maybe all these things have happened. There have been negative things too. Decade-long droughts, very hot summers, depleted urban and farming water supplies in some very wealthy places like California and SE Australia. There have been very severe storms: hurricanes in the Atlantic, typhoons in Asia and cyclones in northern Australia. Some winters in some places like the eastern seaboard of North America or Eastern Europe have been very severe too, while at the same time Alaska has had very warm winters. The last two winter Olympic Games – in Soichi, Russia and southern British Columbia – were starved for snow.

The media has done an extremely comprehensive job of broadcasting all this through the established technologies – newsprint and television in particular. New media – social networking on the Internet especially – has done an even better job. The explosive adoption of mobile technologies – mostly smartphones and “phablets” – has made the new media and the old collide in ways never before imagined. Established and newer media players have seized the convergence opportunity in new and better business models to reach an ever-growing and much younger audience.

This is precisely the demographic predisposed to the climate change issue and action to combat the climate crisis. A virtuous spiral of the media feeding and becoming the message on climate finds an already engaged generation who want to do more than passively receive bad news and maintain a status quo. If anyone had told me as a university student that the way to meet the looming environmental challenge of the next 40 years was to connect devices on-line with a consciousness in the next generation and the one to follow, I wouldn’t have believed it. Looking back, my ancestors – my auto industry father and grandfather, my uncle and grandfather in the mining business – would have refuted out of hand that a shrunken-down computer with a radio-telephone in it could change the world in such a way.

In his G20 speech in Brisbane in front of University of Queensland students, the President mentioned quoting one of their alumni in a tweet on Twitter to his 30 million followers. He is, after all, the most on-line President of the United States that’s ever been. But what got much more adulation was his commitments on climate change and his acknowledgement of the importance of women and gay rights. For all the talk on hard power and the rebalancing of American military resources to the Asia Pacific, climate and GLBT equality seemed to strike a chord with his young audience. That, if nothing else, is cause for great hope for the future.

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Changing the Car (Business)

Tesla Motors held a media event this week to announce two things: a dual-motor version of its Model S sedan and some driver-assist features called Autopilot. As with most of Tesla’s media announcements, there was significant speculation and hype followed by viral coverage after the fact. Elon Musk, their CEO, tweeted something a few days before the event to spark this off. He is, much as Steve Jobs was, a practiced media performer who knows how to make great products and get them noticed.

Elon is also on a mission to redefine the automotive industry. He is not the first to make electric cars. Ferdinand Porsche showed one at the Paris Exhibition in 1900. Musk is different than other Auto execs. Like Henry Ford, he is an engineer, but unlike Ford was when he launched the Model T he is already successful and wealthy. Elon is by far the wealthiest CEO in the car business. Like Daimler and Benz, he makes premium vehicles with significant technological innovations that matter for car drivers. But most of Tesla’s innovations are more like information and communications industry products than mechanical engineering breakthroughs. Most importantly, and potentially impactful, his business model is radically different than anyone else’s in the industry today. He has no dealer network, he builds “supercharger” stations that provide free energy to his customers and he has modest physical infrastructure and massive intellectual property resources.

As with any disruptor, there is opposition from the incumbents. For years, the conventional wisdom in the automotive ecosystem said Tesla’s goals were impossible. Early products were heavily criticised for all sorts of reasons. More recently, there have been a raft of legal challenges from car-dealer associations to his direct-selling activities. Some have succeeded, some failed and a few that succeeded have been overturned. The success of the Model S – a “mid-sized” sedan in American car parlance – has been hard to ignore. I test-drove one of these here in Australia last week and was seriously impressed. It has won no less than the Car and Driver magazine’s Car of the Year award.

Tesla’s ambitions are much greater though. They want to become a significant volume producer in the coming years. This is no pipe-dream. They are investing, alongside supply chain partners, in large-scale production capacity as well as cutting-edge manufacturing capabilities. Their so-called “Gigafactory” in the US southwest, designed to make batteries, is one of the largest in any industry ever. They want to be a premium product producer. Last week’s announcement of the dual-motor Model S is up there in super-car territory. Only Audi’s new RS7 and Mercedes’ new E63 AMG S come anywhere near close. Tesla want to up-end the dynamics of the car business by putting the driver at the centre and the vendor second. Everything about their approach is personalised and customer-intimate.

Challenges remain. Engineering a car like the Tesla Model S P85D has been a long and slow road. Making a lower-cost, higher-volume vehicle will not happen quickly. But opportunities abound. In the last two years, Tesla’s stock price has risen ten-fold, much like a technology start-up. Their non-US operations are growing well – they launch here in Australia in coming weeks. The Supercharger network is being built out and, if any, is ahead of schedule. Next year, there will be several constructed between Melbourne and Sydney. Solar-powered charging kits are already available to put on a garage roof, for a modest up-front investment.

The old adages of limited range are becoming less and less of an issue. Most people refuel their gasoline-powered cars in an urban area. The “limitation” of time-to-recharge has been overcome. Tesla can robotically replace the entire battery-pack in the vehicle faster than a petrol-powered car can be refuelled (about 2 minutes). Renewable (and nuclear, elsewhere) electricity is, finally, becoming much more mainstream. A plug-in electric car really doesn’t and should not need to be using power produced by fossil fuels. Driving a high performance car need not sacrifice practicality any longer. The dual-motor Model S looks like a stylish family sedan but can get to 100 km/h is just over 3 seconds.

Most importantly, Elon Musk is a serial innovator. He was part of the PayPal mafia. His rockets deliver supplies to the Space Station. He is also an Open Sorcerer: he has offered the technology for the Tesla royalty-free for anyone that wants to build electric cars and had published the designs for the Hyperloop online for anyone that wants to build it. Tesla and SpaceX are not the last of Elon’s works we will see. He wants to change the car, the car business, several other businesses (like Jobs) and perhaps change business itself. He persists when others withdraw. His engineers work tirelessly to deliver on his vision. His sales people – and there are precious few of them – treat prospects and customers like people in a very sophisticated and modern way. There is nothing greedy or impersonal about any of this. Elon wants to change the world and Tesla is only one way he is doing that. I look forward to Tesla coming to Australia and relish the prospect of becoming one of his customers one day.

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