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3 Keys to The Future of Digital Business

2012 October 2
future_technology

Winston Churchill once wrote that “The empires of the future are the empires of the mind.”  I think it’s clear that’s never been more true than today.

As old line industrial firms struggle to survive, web based startups less than two years old become billion dollar enterprises.  While the past few decades have been characterized by offshoring to cheap labor markets, now manufacturing is coming back, albeit to factories that are largely ran by algorithms.

The underlying trend is the rise of informational content in the products and services that make up our economy and, increasingly, that information is managed by machines rather than humans.  That is the essence of digital business and it’s changing everything we thought we knew about creating value.  Here are 3 keys to understanding the new era.

1. The Singularity is Near

In The Singularity Is Near, technology pioneer Ray Kurzweil argues that the Moore’s Law concept applies far beyond processing power.  In his view, “all technologies will essentially become information technologies, including energy.”  Therefore, all industries will eventually enjoy the same exponential advancement as computer chips have.

Buy a box of cereal at Wal-Mart and you’re not purchasing a mere assortment of grains packaged in cardboard, but also logistics and marketing which, increasingly, are managed by computers rather than humans.  In some cases, even the genetic algorithms that drive those processes are largely self-organizing, with minimal human intervention.

The upshot, as the graph below shows, is that technology cycles are significantly truncating:
 

 
That’s all very exciting, but it does create a problem.  As I pointed out in a post about Facebook’s purchase of Instagram, when technology cycles become shorter than corporate decision cycles, we need to change our entire basis for formulating strategy.  Planning is giving way to hacking and our mindset needs to change accordingly.

2. The End of the Computer Age

I remember when people first started buying computers in the early 1980’s.  They were primarily for fun, mostly used to horse around and play games.  Eventually, VisiCalc invented the electronic spreadsheet and computers became more useful, but we were still constrained by limits of processing speed, storage and, once we got online, by bandwidth.

The typical family today owns a few laptops, a bunch of smartphones and maybe a tablet or two.  That’s an enormous amount of computing power and far more than we really need.  Moreover, in ten years our technology will be 100 times more powerful; in 15 years, a thousand times more powerful.

Obviously the present course is unsustainable.  We don’t really need computers anymore, but processing, storage, bandwidth and a means of interface (i.e. keyboard, screen, voice and gesture), none of which necessarily need to be tethered to a box anymore, but can be integrated into native environments.

That becomes important as digital business becomes predominant.  The question is becoming less about how a company can “go digital” and more one of how consumers and partners can interface with the internal architecture of our organization.

3. The Rise of the Machines and the Post-ROI World

A decade ago, the marketing world became enamored with the concept of ROI as a practice.  The idea was that technology could not only build efficiencies, but transparency and accountability.  That effort, although still underway, has largely been successful.

As this article in explains, in the few milliseconds it takes content to load on our screens, dozens of companies collaborate to parse a sea of data in order to deliver the right message to the right person at the right time.  However, much like the workerless factories and logistics noted above, this process is driven by algorithms more than people..

The ROI effort, while still important, faces diminishing returns as more and more processing power chases smaller and smaller efficiencies.  The great opportunity today is to deploy technology toward processes that up till now we have assumed to require uniquely human intuition.
 

 
The cartoon above points the way to the next phase.  Artificial intelligence methodologies, particularly natural language processing, are advancing quickly will soon take over more qualitative marketing functions.  Companies like Networked Insights and Open Amplify have already built impressive platforms in that regard.

These new technologies will integrate with existing platforms and do much of the analysis (e.g. consumer conversations) that we have come to think of as innately intuitive and they will do it in massive volumes at blazing speed.  Emphasis will shift from creating efficiency to creating value.

The Nature of the Firm and The Passion Economy

In 1937, Ronald Coase wrote his groundbreaking paper, The Nature of the Firm, which would later be cited when he was awarded the 1991 Nobel prize for economics.  The basic concept can be summed up in this equation:

The Firm = Transaction Costs (i.e. contracts, search costs, etc.)  = Organizational Costs

In other words, the organizational economy was made up of firms that could grow by diminishing transaction costs until organizational costs built up and nullified that advantage.  Digital technology, however has diminished many of those transactional costs and what firms produce today, to a large extent, are designs.

So the role of firms has changed considerably.  In the organizational economy, they mainly served as efficient entities to get men and materiel from one place to another.  Today, however, successful firms must direct passion toward a unified purpose.

As machines automate mundane tasks, creativity is coming to the fore as a primary source of competitive advantage.  The future of digital business, ironically, is all too human.

– Greg

7 Responses leave one →
  1. October 4, 2012

    Greg,

    Very, very great post.
    Let me to add some thoughts to your vision.
    You point out that we are really dealing with new factor of production – information factor. It means that we will have new community – information society with new institutions (including digital institutons based on computer systems).

    To work with information factor we need business intelligence system and new system for financial support of information factor. In industrial period we had the means of production – machines – and credit system for financing the production.

    The question is how to deploy this ecosystem. Today’s strategy to monetize the traffic or information is not sufficient for business development.

    Sergei

    [Reply]

    Greg Reply:

    Very good point Sergei! I do think that we’re moving into an era where brands become platforms for collaboration. We do have some experience with this in the form of enterprise software, but that was for internal information only. I’ve referred to this before as the Semantic Economy.

    I think the missing element is building true operating systems for organizations which can interface with external information as well as we’ve learned to integrate internal financial information. You can already see this with some of the ad tech coming out, but we’re still probably five years out before we start seeing really effective, holistic systems.

    – Greg

    [Reply]

    Sergei P. Reply:

    It seems to me that brands create new business opportunities that cause the collaboration. But these new opportunities should be promoted by business intelligence. Additionally, we should join capital with these opportunities caused by information factor.

    Today’s credit finance system does not fit to work with information factor – intellectual property, brands and goodwill are ineffective in today’s digital world. Without business intelligence it will be difficult to develop the brand, to deliver it to customer and to involve customer in collaboration. There are too many data, too many Big Data, we need the digital advisor :- )))

    [Reply]

    Greg Reply:

    I think it goes beyond business intelligence because the interaction goes both ways. Brands are creating open API’s and SDK’s in order to facilitate interaction and collaboration.

    – Greg

  2. October 5, 2012

    Greg,

    you are fully right from corporate point of view. Corporations will use new digital channels and Internet-opportunities for their business but they will never build the information society.

    From other side, user would like to exploit new Internet-opportunities to make a business and to make a new life. He needs business intelligence and financial system to develop information society and to satisfy his business and social demands.

    You talk mostly about digital corporations but, it seems to me, that today’s main trend is the digital user (E-user). We see it on social networks, blogosphere, etc. It opens differently new opportunities for economical and social development.

    On my opinion, if somebody offer the business social network with business intelligence system (semantic, ontology, artificial intellect) and appropriate financial system then this network will have an explosive growth…

    Sergei

    [Reply]

  3. October 7, 2012

    Hello Greg,

    As always, your mind works in very interesting patterns. There seems to be some sort of creative destruction occurring around us. Not only are we consuming everything that moves, we are polluting what remains. I realize this is not totally related to your piece, but there is a through line of digital and innovation that seems totally disconnected to ordinary people. What will the worlds workforce look like when AI dominates? Is there to be a reckoning that there are simply too many people and too little resources for survival? How to you see the technology, digital in particular, in this rush to the end?

    Jmorran

    [Reply]

    Greg Reply:

    John,

    I think you raise two important questions. The first is primarily about energy, which I’ve written about before (http://www.digitaltonto.com/2012/energy-by-algorithm/) and I think that the record is clear that technology improves environmental performance. I know that isn’t immediately apparent, but if you’ve spend significant time int he developing world, as I have, the conclusion is unmistakable.

    The future in this area is bright. In the US, we will get 17% of our fuel from advanced biofuels (i.e. not from corn) by 2022 and gas mileage will double by 2022. This is only possible because of digital technology.

    The second question, about what will people do in an increasingly automated world, is a bit more troubling. Factories that used to employ thousands can now achieve the same output with a few dozen. That creates some great high wage jobs for some, but what do the others do?

    The answer is subtle. Computers are great at taking care of basic needs, but don’t do well when it comes to enhancing the lives of other humans. Today, we expect restaurants to serve not just food, but experiences. We travel more, go to the gym, spend more on entertainment, books and countless other things that would have seemed like luxuries just a generation or two ago.

    By coincidence, I’m posting about this on Wednesday. So check in then for a more comprehensive discussion.

    – Greg

    [Reply]

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