Pace Layering
In this article, we describe what Pace Layering is and why it's important as a framework for understanding emerging technology development and adoption cycles.
The best way to understand the concept of Pace Layering is to view the following image:
For those who are unable to see it, we will describe what's in this black-and-white image. There are a series of concentric rings with Nature at the center, then moving outwards Culture, Governance, Infrastructure, Commerce, and Fashion. Details of each layer are as follows:
Elements closer to the center of these rings are fundamental structures upon which we can build knowledge, shared understanding, and engineering principles and use them to build a society. Without our understanding of mathematics, we could not have built computers or sent rockets to the moon. Similarly, we can't build stable engineering systems on top of fashion. Sure, we can change the design of the space suits, but that design doesn't get us to the moon.
Another mental model for pace layering in the form of a house. As shown in the image below, you can see how the innermost rings, like “stuff,” change more rapidly than the outermost rings, like the foundation and structural elements.
As you think about Bitcoin, it has its primary layer 1 protocol, the layer 2 rollups that allow for faster and cheaper transactions around the outside of that, and more traditional businesses in layer 3 outside that like exchanges. This perfectly maps to Pace Layering. Layer 2 and Layer 3 businesses, and even other cryptocurrencies like Ethereum are faster-moving, prototyping layers that eventually get consumed down into the most fundamental layer (i.e., the Bitcoin Blockchain).
We can extrapolate this to all forms of emerging tech. At this point, SAAS is a known quantity and safe, but two decades ago, it was a novel idea. Instead of putting software on floppy discs or CDs, we put the software on a website that is constantly updating, charge a monthly price so we have continual cash flow, and work on attracting new customers while retaining the old. Investors look at that today and want stable recurring revenue, growing EBITDA, and 90%+ customer retention with the opportunity for cross-selling and up-selling.
The equation has been solved, and as a result, there is tremendous competition, which drives down profits for every business and person competing in the space.
In essence, SAAS (and eCommerce) has moved from emerging tech to fashionable tech where it's easy to spin one up in a few days. Hence the rise of drop-shipping and creator courses.
In Pace Layering terms, nothing has changed at the core, the inner circle. A successful business has growing recurring revenue, stable or growing EBITDA, and high customer retention.
But the value that can be created by the pioneers has moved from SAAS to something new. And the smart money follows. Hence, the rise of spatial computing (Apple Vision Pro), generative AI (OpenAI), and blockchain-based cryptocurrency (Bitcoin).
Because they used to be more emerging, they were Fashionable for the early tech adopters, but they've moved down through commerce and are encroaching on the Infrastructure, Governance, and Culture. In essence, they have all been officially commercialized as of 2024.
Apple released its AR product to businesses and consumers globally. AI is seeing massive adoption by the enterprise, with NVIDIA stock blowing past aggressive earnings estimates and Big Tech spending ungodly sums investing in foundational models. And Bitcoin had its IPO moment, approved by the SEC to be included in ETFs listed by many different companies.
At this stage, it's no longer "emerging tech". We are squarely in simply "tech". The next phase is the professional sales and marketing teams attempting to drive it from the Culture layer down into the Nature layer of business (i.e., recurring revenue, stable EBITDA, and high customer retention).
But we know that it won't look the same. Streaming global payments are here, as are AI agents working on our behalf 24x7x365 in the real and virtual worlds. So, recurring revenue is unlikely to be calculated on a monthly basis and will instead be calculated on a real-time, second-by-second basis.
The cash you earn will move up and down as your AI agents negotiate on your behalf. Your entire job is system design and leveling up your Agents faster than others to find arbitrage opportunities in the system. The smarter and more compute-powerful your agent is, the faster it communicates, the further its reach, the more processing power, and the more capital at its disposal, the higher your cash flow streams will be from moment to moment.
You can dial up or down the risk, but if you thought mobile meant you were connected all the time, prepare to begin playing a different game. The company that helps you level up your "money machine" faster than others will be the ones that grab the next profit pool.
However, it's unlikely you have the time, experience, or skill to execute this, especially when considering 6 or 7 billion people will all need to do this. So, a cottage industry of service providers will develop that you will outsource this to. They will take a percentage of what they earn you, and you can go about your life, and enjoy a little more time to yourself.
Some will have higher entry fees to help them onboard the necessary extra compute to compete. So, the wealthy with technology relationships will get more, faster while those with less will struggle to keep up.
The LVMH of the future may look more like a data center than a handbag. Luxurious data centers wrapped in fashionable clothing working to earn you higher income streams so you can relax on longer holidays.
We'll pause this second-order logic, and refer you to a book that goes deeper into what happens economically: The Origin of Wealth.
--Sean