Sorting Out 2016: Seven MegaTrends

An awful lot of tech stuff is going down these days, and it is creating some serious confusion.  Whiskey, Tango, Foxtrot is rapidly becoming the call sign for our current era.  We may not yet feel we are in jeopardy, but we certainly do not feel in control.  What in the world is going on?

Being a somewhat linear thinker, I have been trying to sort these things out as a sequence of disruptive trends, each building on the ones before it, each enabling the ones that follow.  It is sort of like counting sheep—not a bad way to get back to sleep when you wake up in the middle of the night as I often do.  At present, I can count to seven:

1. Digitalization 1.0: Cloud computing, mobile devices, and the Internet of things digitalize everything. Digitizing is so last century.  That’s when we got all the information into the computers.  Digitalization is the new trend.  That’s when we get it all back out.  We are well down this path already, but it is still local enough and novel enough that whole swaths of the economy are hoping they can sit this one out.  Fat chance.  The economics of digitalization are such that wherever there is trapped value we can now sense it electronically and connect it to a system that can release and harvest that value.  Uber and Airbnb are just the tip of the iceberg.  Industrial preventive maintenance, mobile customer service, risk management and financial services, home health care, education of anyone at any age in any discipline—there are massive pockets of trapped value everywhere you look.  Digitalization unlocks trapped value.  This is good for the disruptor and bad for the incumbent, the bulk of whose profit margins depend on exploiting trapped value.
2. Supply exceeds demand: The age of the customer. For virtually the entirety of the 20th century, demand exceeded supply, often dramatically.  We built a global supply chain around this “power gradient,” where goods are stocked in stores and consumers wait in line, look at ads, and buy what is available or on sale.  Digitalization 1.0 has already made this supply chain staggeringly more efficient—that is what has caused the polar inversion of supply and demand.  Goods are now both plentiful and cheap.  It is the consumer who is becoming the scarce ingredient, or rather, the consumer’s time and attention.  Forrester calls it the Age of the Customer.  At present it is primarily an urban experience confined to countries where rule of law prevails, but since this is also where the bulk of all the world’s free cash flow is flowing, it will cause our entire economy to rotate on its axis.
3. Marketing preempts manufacturing: The rise of user experience and design thinking. This is a direct follow-on from the supply/demand polar inversion.  If customers not products are the scarce ingredient, then marketing not manufacturing is the scarce capability.  This is where the return on innovation will come from next.  Our institutions are just getting their arms around this notion at present.  Actually, many top executives are already there, but middle management—the place where all marketing work gets done and all marketing budget gets spent—is still stuck running the old playbook.  That’s why disruptors leveraging design thinking and user experience design are having such a field day.  There’s nobody showing up from the opposing team.  They’re still stuck in the locker room trying to complete their half-time adjustments.
4. Digitalization 2.0: Pervasive AI fed by pervasive machine learning. This is just emerging, but it is an inevitable outgrowth of Digitalization 1.0.  Every digital event is logged, and as the folks at Google and Facebook (not to mention the NSA) have taught us, all logs can be mined.  More importantly, as the cost of so doing asymptotically approaches zero, all logs will be mined.  At present, of course, the price is nowhere near zero, so we mine things where the amount of trapped value is great enough to pay back the current investment.  But with Open Compute and the Internet of Things, this will be short lived.  That means every process can and will get smarter over time, more efficient, more productive.  Sounds great, unless your business model involves being some sort of a middleman who today gets paid out for sorting out the kinds of messes these machines won’t make in the future.  And in the great bucket brigade of life, who is not a middleman?
5. User experience 2.0: Talking with Turing—the conversational user interface. This too is just emerging, what we might call the rise of the bots.  User experience design 1.0 was fulfilled when a system obeyed the law of least astonishment—it did what you expected it to do without you having to behave in some strange or foreign way.  Still, you had to drive the system yourself, you had to push the buttons.  With UX 2.0 it is more of a conversation.  The system anticipates you.  It engages with you.  Instead of hitting a tennis ball against a wall, it is more like playing ping pong.  At present, the quality of the ping pong is highly variable—Siri isn’t always the brightest bulb on the tree—but that can only be temporary.  Machine learning does not unlearn.  It is a ratchet.  It only gets better over time.  So increasingly, as Turing must have anticipated, you won’t know if you are talking to a human or a machine.  In reality, at the beginning it probably will be a human being, and then after a while, it probably won’t.  In the end, you will learn not to care.
6. Software eats employment: An existential crisis. This is serious.  Even as the polar inversion of supply and demand has already undermined manufacturing as one of the two great engines of middle class employment, Digitalization 2.0 displacing “middleman services” is in the process of undermining the other.  At the top end of the pay scale, this actually means more work for a cadre of highly paid specialists who are Digitalization 2.0’s enablers.  And at the bottom end, at least until drones and self-driving cars become pervasive, there is still plenty of minimum wage physical task work to be performed.  But middle class employment is, well, caught in the middle.  Instead of releasing trapped value, it has become the locus of trapped value.  A whole lot of our productivity improvements are coming from designing people out of the next generation of systems.  This is an existential crisis.  That is why a laissez faire public policy of standing still is such a dangerous strategy at this time.
7. Service economy 2.0: Reengineering our world top to bottom, end to end. This, I believe, is where we can find major new sources of trapped value that can fuel future economic returns.  We have built a global economy on the back of a product supply chain enabled by engineering, manufacturing, and logistics, one in which marketing, selling, and customer service serve as ancillary expenditures.  Now the poles have been reversed.  In the age of the customer, we will see that marketing, sales, and services are the new engines of growth, with engineering, manufacturing, and logistics playing the supporting roles.  To be sure, these customer-facing disciplines will require a lot of innovative reengineering to be fit for purpose.  That’s what’s behind the emergence of design thinking and user experience design, of collaboration and social marketing, of customer clouds and marketing clouds, of systems of engagement and enlistment.  Today’s marketing, sales, and customer service systems entail massive amounts of wasted spending, unengaged target audiences, unenlisted volunteers, negative word-of-mouth, installed base churn, and residual ennui.  And what is our current response to such under-performing systems?  Simply spend more!  In sum, there is a staggering amount of trapped value in the current playbook, and releasing it is what will drive the next generation of economic growth.

''On or about December 1910 human character changed,'' Virginia Woolf once famously observed.  It’s been a hundred years since.  Maybe we are in for the next round.

That’s what I think.  What do you think? _________________________________________________________________________

Geoffrey Moore | Zone to Win | Geoffrey Moore Twitter | Geoffrey Moore YouTube