Not Your Typical Technology Trends – 2020 and Beyond

Imagine the world of 500 million Bill Gates and Jeff Bezos roaming the earth.. What will the government role be in such society? What role will corporations play? How would human labor be organized? What will be the meaning of nationality?
We are in the middle of major shift that is difficult to see on the surface but the ground has been shifting since the dawn of the internet. There are numerous publications on how technology will transform business and “how to” guides to make the transition. However, there is limited material on how this new  era of information technology will impact you as the individual.  The good news is, the  new era provides ample of opportunities to leap frog to prosperity.  Those who can educate and motivate themselves will be almost entirely free to invent their own work and realize full benefits of their own productivity. Ideas become wealth rather than physical capital alone. Anyone who thinks clearly will potentially be wealthy.  They are the class of ” Sovereign Individuals”.  Convergence of technology and globalization will be equalizer for financial success. Race, gender. location no longer limitation to tapping into global market to deliver services.
The future is disorder. A door like this has cracked open five or six times since we got up on our hind legs. It is the best possible time to be alive, when almost everything you thought you knew is wrong“. – Tom Stoppard, Arcadia
Unbeknownst to most, we are currently in the middle of major shift – rewriting the rules of the government and meaning of citizenship.  New technologies creating new ways of forming social, political or profit based organizations (e.g. Facebook, Twitter, Linkedin) where rules of engagement are dictated by those who organize them and providing opportunities to earn and,  in some instances,  create new forms of capital. In the past it was strictly the role of church or government. In 15th century church played the role of government by collecting taxes and determining rules and regulations of societal conduct. The details of life were almost as thoroughly regulated by canon law as they are today by bureaucracy. Canon law dictated monopoly prices to ensure only goods from church controlled regions were sold in the marketplace. Even ban on eating meat on Fridays was commercially motivated. It poured profits from fisheries where Church was the primary owner. It even went as far as controlling marital conduct between spouses which led to growth of the prostitution from which Church profited mightily. You get the point…By the end of 15th century, the costs of supporting institutionalized religion had reached the extreme, much as the costs of supporting government have reached extreme today. The demise of church control was predicated upon the fact that it was too big to sustain itself. It could no longer collect enough revenue to support its size. Western governments today find themselves in similar predicament. In order to keep funding themselves, revenue (aka taxes) must keep up with the spending. Tax revenue has gone up year over year while the government budget spending gone up at even higher rate.
While during industrial age it was accepted by individuals as the norm because there was little choice other than comply with government imposed taxation. Your livelihood was directly tied to specific location or region (forced citizenship). People worked for companies or ran those companies in capital heavy industries and inflexible infrastructure. You simply could not transfer your work or business on-line or tax friendly region. Information age is changing this dynamic. Hello the world of digital nomads! In the recent MBO Partners State of Independence Research Brief, 4.8 million Americans described themselves as digital nomads. Among traditional U.S. workers, 27% said they “might” become digital nomads in the next 2-3 years, and 11% said they planned to. 2020 likely accelerated this transition to more individuals becoming digital nomads.
The other cohort  who is closely watching this trend unfold and are voting with their feet – Wealthy Americans… Eric Schmidt acquired all the typical trappings of a mega-rich U.S. citizen: a superyacht, a Gulfstream jet, a Manhattan penthouse. One of his newest assets is far less conventional: a second passport. Alphabet Inc.’s former chief executive officer applied to become a citizen of Cyprus, according to an announcement last month in a Cypriot newspaper that was first reported by the website Recode. Schmidt, 65, joins a growing club of individuals participating in government programs enabling foreigners to acquire passports. In previous years, U.S. citizens rarely sought to buy so-called golden passports. The business mainly thrived targeting people from countries with fewer travel freedoms than the U.S., such as China, Nigeria or Pakistan. But that’s changing. People close to the industry say they’ve been inundated with inquiries from citizens of the world’s richest country. “We haven’t seen the likes of this before,” said Paddy Blewer, a London-based director at citizenship and residency-advisory firm Henley & Partners, referring to queries from U.S. individuals. “The dam actually burst — and we didn’t realize it — at the end of last year, and it’s just continued getting stronger.” What is the reason of such sudden interest to obtain second passports? Taxation and fear of civil unrest.  US is the only developed country in the world to tax its citizens on income earned anywhere in the world. The rule dates back to Civil War.  The point being, “sovereign individuals” have options to reside in countries or jurisdictions that are favorable to their financial and personal interests. Options create competition and the number of countries competing  for those “sovereign individuals” will likely to increase.
This new trend has first and second degree effects. First, it diminishes the government’s ability to collect needed revenue. As by product of wealthy individuals departing to tax and investment enclaves, taxes for those who stay behind (have nots) go up.  And the vicious cycle of higher taxes, decreased purchasing power, limited upward mobility goes on… until the show stops and new form of society emerges (not without period of chaos and turmoil). COVID has been an accelerator of emergence of this new form of society. It established caste system in US: digital haves and physical have nots. In other words, it divided society into individuals who can earn livelihoods and, in some cases, become even wealthier (e.g. Amazon shareholders)  as result of pandemic versus  those whose livelihoods vanished overnight. Pandemic is not the root cause of this divide, it simply brought to surface something that has been forming for years. It accelerated the trend and turned into reality overnight. Similar to how businesses were forced to go digital or die. Only in this case we are talking about real people with real consequences for their families and future generations.
While this divide of haves and have nots is apparent in the workforce. There is broader phenomenon taking place that is not quite visible on the surface – transition from national fiat to  privatized moneyWe are living in unprecedented  time period of cheap money. Since 2008 government has done everything in its power to inject economy with liquidity and as result causing all sorts of havoc. In order to understand what is happing , we must go back in time. The creation of printing press enabled government to print money nationalizing money supply. What got lost in history is the fact that actual money was gold. Printed paper certificates or coins were simply form of exchange for the sake of convenience (it would be difficult to pay for coffee in gold dust), not the actual money. Governments around the world agreed that while they will trade in dollars, it will always be backed by gold. Federal Reserve bank was created with the mandate of ensuring balancing between printed currency (fiat money) and gold (real, scares money). All was fine until US realized in 1970s that it does not have enough gold to back its paper currency. Solution? Get rid of gold standard….remove requirement to back all printed money by gold. As result, Federal Reserve is now able to print as much fiat as it wants without any accountability.  It actually does not even need to print anything, simply add zeros to the ledger. Wow.. imagine you are able to add as many zeros as you would like to your bank account without having to do anything or be accountable to anyone. How you would behave? If you are like most of us mortals, you will be added those zeros as fast as fingers can move. Government essentially is behaving in the same fashion. It took them less than a minute and zero cost to “print” 4 trillion stimulus money. The result… devaluation of fiat money. Yes, same money you hold in your checking or savings account is now worth less because government created more of it.
Now we are seeing yet another shift that is deepening the caste system of haves and have nots. The rise of digital currency such as bitcoin – bitcoin standard. Everyone is mostly focused on Bitcoin price but miss the bigger picture (yes, Bitcoin is up 195% year to date). The thing is haves (“Sovereign Individuals”) are coming to realization that they have the choice to make: 1)  keep fiat money that have no attributes of real money (and in some cases pay interest to the bank for holding it…) or b) look for alternative solutions. Their choice is clear: buy bitcoin. In addition, when these haves (“Sovereign Individuals”) are migrating to tax and investment friendly enclaves, guess what is first thing they “pack” with them? You guessed it…money.  What they uncovered, it is simpler said than done. Why? Governments are not so quick to depart with the capital. Hence the rise of new form of money that is  denationalized. According to James D. Davidson and Lord M. Moog  While paper money will no doubt remain in circulation as the residual medium of exchange for the poor and computer illiterate, money for high value transactions will be privatized”And this is happening already. Bitcoin average transaction value currently stands at $151,000 .It spiked by 30% since July when pandemic across the globe set in.  The fact is that regular folks do not transact in hundreds of thousands of dollars, only organizations or “sovereign individuals” do.  Bitcoin is becoming asset holding instrument for the wealthy. Why? Well you can transfer bitcoin in minutes for the cost of few dollars versus fiat currently which takes dates, even weeks and will cost a fortune. And try buying gold these days, not as simple as you would think (but this is another blog in itself). 
Transition to sovereign money will not happen overnight and without governments intervention. There is a flurry of activity in central banks around the world to create their own digital currencies like Bitcoin. Wall Street Journal wrote an insightful peace on this topic –  Why Central Banks Want to Create Their Own Digital Currencies Like Bitcoin – WSJ“. The pandemic is accelerating a shift away from the use of physical cash in most developed economies, with alternative payment methods or private cryptocurrencies potentially taking its place. Central banks are exploring ways to create a digital version of cash: money that is trusted, convenient to use and widely available to people, for making payments and getting paid. Digital currencies have the potential to make it easier, cheaper and faster to move money around. If foreign countries issue their own digital currencies, or if private cryptocurrencies were to gain popularity, they could eat into use of the traditional forms of money issued by central banks, and pose a threat to policy makers’ ability to transmit monetary policy. Unlike opening up a bank account, users don’t have to provide any identifying information to start a cryptocurrency account. That is also making it challenging for authorities to track, trace and crackdown on malicious actors using cryptocurrencies”. 
Government is not alone in this fight.  2020 has seen a competitive landscape develop, with both the private sector and governmental sector involved in the issuance of a variety of crypto-fiat hybrids. Recently new phenomenon – stablecoins are gaining ground with current capitalization rate of close to $10 billion. One of  the most hyped stable coin projects, Libra, seems to be moving forward with its updated whitepaper v2. If Libra succeeds, stablecoins backed by several fiat currencies will be released to the circulation with potentially immediate mass global adoption. Let’s be clear, both government and private sector are flighting against common enemy, Bitcoin which is the ultimate private/independent form of money. 
The transition to more privatized version of money will take decades to play out. Eventually we will not be relying on government to provide us with money. This will be more return to the norm than exception. While the concept of private money sounds very foreign to us today,  private competing currencies circulated in Scotland in 18th century. During that time period, Scotland did not have Federal Reserve bank. Private banks issued their own private currency backed by gold. Michael Prowse of the Financial Times summarized Scotland’s free-banking experience: ” There was little fraud. There was no evidence of over-issue of notes. Banks did not typically hold either excessive or inadequate reserves. The free Banks commanded the respect of citizens and provided as sound foundation for the economic growth that outpaced that in England for the most of the period”. Essentially society had sound monetary system until Federal Reserve banking system started to dominate….
The other major shift underway that is not visible on the surface –  transfer of information from nation state to individual. Through out the history, either Church or Government owned printing press. The rise of internet democratized information and platforms such as You tube, Twitter lowered entry to reach global audience. As result, we are seeing the emergence of “sovereign individuals” who are followed by millions and able to monetize the audience. From make up artists and video gamers to university professors and politicians, With the rise of the internet the game of leverage has changed. In industrial world convicting people to labor for your organization was the leverage, today code and online media is leverage.
“Code and media are permission-less leverage. They’re the leverage behind the newly rich. You can create software and media that works for you while you sleep.” NAVAL RAVIKANT
Internet opened window of new opportunity to make the living for those who have good ideas and have grid to pursue those opportunities, but it takes discipline and, as we all know, by nature humans are inclined to stay still unless tiger is chasing after them. As result, most individuals remain oblivious or unaware (Netflix has their full undivided attention) of those opportunities.
The internet has massively broadened the possible space of careers. Most people haven’t figured this out yet.” –  NAVAL RAVIKANT
My favorite type of emerging “sovereign individual” are professors whose wisdom has been walled off by universities is now finding the voice on the global stage… as Scott Galloway (one of those professors) would say: “ Gangster Move”. Another good example is Ben Thompson who was able to move his blog behind paywall as early as 2014 and now bringing seven figures in revenue while living in Taiwan.  Recently he wrote on how can one differentiate herself online – https://stratechery.com/2020/never-ending-niches/. And then there is an army of social media influencers that essentially  rewrote the rules of digital advertising. The point here is that as long as you have something to say or write that is valuable to the audience, the information infrastructure allows you to do so.
As social media expands its cultural dominance, the people who can steer the online conversation will have an upper hand.” – New York Times
You see the thing is information age has changed the rules of the game. During industrial age, folks with very limited skills could find factory work that provided middle class lifestyle. That is no longer the case. Internet created further divide between skilled (tech savvy)  and non skilled labor (physical labor). Technology creates an interesting  dynamic.  At one point in time, industrial and agricultural automation was attractive to non skilled labor  because it created earnings opportunities for them and lowered their cost of living. New tools allowed those without skills to produce goods of quality equal to those made by persons of high skills. A genius and moron on the assembly line would both produce the same product, and earn the same wage. Information age made this distinction between the two types crystal clear. “Genius” joined digital economy while the rest stayed behind. 2020 pandemic highlighted the difference even more so.  We are in the middle of greatest shift of services employees and factory workers to warehouse and packing employees. Folks who lost work because of physical aspects of their labor, they did not join digital workforce or found other ways to make living on-line, instead they were gobbled by Amazon machine (and making corporate elites that much wealthier). As New Your Times article pointed out: “Amazon has embarked on an extraordinary hiring binge this year, vacuuming up an average of 1,400 new workers a day and solidifying its power as online shopping becomes more entrenched in the coronavirus pandemicAmazon added 427,300 employees between January and October, pushing its work force to more than 1.2 million people globally, up more than 50 percent from a year ago. Its number of workers now approaches the entire population of Dallas. The spree has accelerated since the onset of the pandemic, which has turbocharged Amazon’s business and made it a winner of the crisis…” Instead of using this time to accelerate digital skills development for vulnerable population, they simply got ‘forced” into cheap labor in Amazon warehouses…
So what would the world look like with 500 million Jeff Bazos and Bill Gates roaming the earth? In short, the concept of locality would be transformed and, in some instances, loose any meaning. Money would be denationalized  to accommodate the global nature of their daily lives and also because government backed money is loosing its value due to unprecedented quantitative easing. They are likely to close themselves off in gated communities, away from chaotic existence of the rest. Fewer people will do more work – underlying theme of information age. Information does not have the same constraints that physical goods have: it travels seamlessly across borders. It is much more efficient, eradicating a lot of waste from the system. But much of that waste and inefficiency are our jobs. As it takes away the old, technology provided new opportunities to individuals with good ideas and clear thinking to create unpresented wealth and join the class of “sovereign individuals”. What you decide to do with this opportunity is entirely up to you…
Please find me on Twitter to continue to conversation.

Swallowing the Fish on Your Way to Business Transformation

How much are you spending on subscriptions each month? If you are like 84% of Americans, you do not have a clue. The average American pays $237 a month for subscription services and they got there without any conscious awareness.  Here is a question: How many of the charges on your last credit card statement were made without you even having to pull your credit card? There is likely charges for Netflix, Spotify, Amazon etc.  Subscriptions are exploding because billions of digital consumers are increasingly favoring access over ownership, but most companies are still built to sell products…

For the past 120 or so years, we’ve been living in the product economy . Companies designed, built, sold, and shipped physical things under the asset transfer model. Business was about inventory, shelving, and cost-plus pricing model. The product was the only governing principle – it organized everything across perfect straight line (just like in Hendry Ford’s assembly line). Post war American corporations organized themselves around strictly delineated product divisions and did not have to answer to anyone. The emergence of enterprise resource planning (ERP) systems only exacerbated this problem. These systems did a good job of measuring operational efficiency, inventory, purchase orders, shipping, payroll but they did a lousy job of measuring customer experience. Thankfully around 20 years ago (thanks to Jeff Bazos) corporate America woke up to realization that all this relentless focus on productivity is coming at a cost – relationship with the customer.

Fast forward to today and most successful companies look nothing like soulless corporations of the past. Today they are  designed around customer need whether it is transportation as the service (Uber), streaming as the services (Netflix),  compute as the service (AWS). While they offer different services, they have one common denominator – access to raw customer need.  They do not compromise on direct customer access to be able to  analyze their behavior to determine the raw need.  Raw need is the essence of what a customer values, independent of how the need is addressed today.  They are relentlessly focused on building direct digital relationships with their customers. This unique insight into the customer allow them to evolve their services around that need.

Let’s look at the ultimate product company of our generation, Apple. In 2007 Steve Jobs introduced iPhone and went on to sell over 2.2 billion units to date. However, in recent earnings call, the company said that it would no longer break out unit sales of the iPhone or its other products. As CFO Luca Maestri said, “a unit of sale is less relevant for us today than it was in the past given the breadth of our portfolio.” Wait….what? Every MBA program teaches that fundamental goal of every business is to create a hit product and then sell as many units of that product as possible, thereby diluting fixed costs in order to compete on margins. Well if that is you, sorry to break it to you, that model is over. Today Apple is more concerned with getting your data rather than shipping iPhone units… They are loud and clear on that point ” we collect information regarding customer activities on our website, iCloud services, our iTunes Store, App Store, Mac App Store, App Store for Apple TV and iBooks Stores and from our other products and services”. As result of all this data collection, Apple is able to rollout brand new offerings – Apple Music, Apple TV +, Apple Arcade, iCloud, Apple News +, Apple Fitness + for small fee of $14.99/month (not a bad deal if you ask me) and collecting whopping $54 billion in revenue. Apple also realizes that the job we hired our phones to do ten years ago (text, call) are no longer the jobs customer needs the phones to do today (e.g. tele-health, fitness, news).  The data crunching allows Apple to move from linear transactional model to circular, dynamic relationship around the customer (Picture 1).

The Relationship Economy — It's All About Valuing Customer Experiences | by Richard Reisman | Medium

 

 

 

 

 

 

 

In the old world companies  used to focus on “getting a product to market” and selling as many units of that product as possible: more cars, more razors, more pens, more laptops. They did this by getting their products into as many sales and distribution channels as possible (e.g. Disney selling its merchandises at Wall-mart, Dell selling PCs through BestBuy). But that is not how modern company thinks. Today successful companies start with the customer. They recognize that that customers spend their time across many channels, and whenever those customers are, that’s where they should be meeting their customers’ needs. And the more information you can learn about the customer, the better you can serve there needs, and the more valuable the relationship becomes. That’s digital transformation: from linear transactional channels – > a circular; dynamic relationship with the customer.

Big changes are coming. If you don’t find out who your customers are in the next  five to ten years, you fail. This explains why smaller startups are able to take down big enterprises by simply knowing whom they are selling better than big competitors.  If you look at new establishment companies such as Amazon, Google, Facebook there were never product companies – no transformation was needed. From the start, these companies were relentlessly focused on building direct digital relationships with their customers.

Now if your company is not one of the digital natives with sophisticated AI algorithms analyzing the customer data, do not panic.. yet. There are great examples of old incumbents transforming itself into services based business models. Let’s look at few examples.

Disney Company is 97 years old. On October 12, 2020 it came out with announcement  “The Walt Disney Company Announces Strategic Reorganization Of Its Media And Entertainment Businesses” . The subtitle to this announcement explains reasoning behind the restructure ” New Structure Designed to Further Accelerate the Company’s Direct-to-Consumer Strategy“.  That’s right. It is all about “Direct-To-Consumer” strategy. No more selling Disney merchandises through 3rd party channels or selling movies via movie theaters. It is now all about direct streaming and engagement with the customer (no more middle men). Profit and loss responsibility is the ultimate indicator of control, the org change puts distribution and particularly direct to consumer services at the top of P&L hierarchy which will allow Disney to be more nimble and allow to go to customers directly with Disney + instead of solely retaining on TV and Theaters (both fading businesses).

 

By changing profit and loss responsibilities Disney is ensuring the whole company is a beneficiary of its content efforts 

Disney's Reorganization

 

The evidence is clear with Disney’s recent announcement of Soul, its next Pixar film, will be released exclusively on Disney Plus.   Setting it up to be the most idealized piece of Disney content ever.
I’m not referring to the actual movie, which looks great; rather, consider how Disney is poised to make money from Soul:

You get the picture. And, at every transaction along the way, Disney will build an ever fuller picture of its customers. Disney, as always, will be selling Disney — it is just getting better and better at it as it more fully integrates its entire value chain.

My personal favorite transformation from linear transaction to circular business model is – Adobe.  It illustrates boldness and courage needed to transform the business.  Founded in 1982, Adobe built its business on a page description language, digital fonts, an electronic document format (PDF) and a suite of desktop applications for photo editing. In 2011 it was bringing $3.4 billion in revenue at a 97 percent gross margin. Most management teams would be hard-pressed to find much fault with these kind of numbers. But there were some troubling signs – the business was growing primarily because of price increases, and the overall user base was not growing. At the same time – Instagram, online video – was exploding. They were literally and figurately stuck in the box. The management team was left with two options. One was to treat Create Suite as bank account (perpetual licensing model)  for a new line of business that would go after digital publishing or  to adapt its business model to the new realities of social, mobile, analytics and cloud (a.k.a. SMAC). It has chosen to move from selling mainly perpetual-license desktop software to a subscription-based model incorporating a mix of desktop software, mobile apps, SaaS applications and cloud services. Which brings us to November 2011 when , Adobe’s CEO, Mark Garret, told dozens of Wall Street analysts that he was going to try as hard as he could to make his company’s revenue earnings fall as quickly as possible. Let that sink ink for second….“Adobe is doubling down in the Digital Media and Digital Marketing categories, markets rich with opportunities for innovation and growth. Moving into FY2012, Adobe will focus its research and development and sales and marketing investments on these two opportunities. In Digital Media, the company expects to attract new customers and increase recurring revenue through its new subscription offering. In order to drive increased Digital Marketing bookings, which are recognized as recurring revenue, the company will reduce its investment, and expected license revenue, in certain enterprise solution product lines. These changes will reduce FY2012 revenue growth by approximately four to five percentage points.” They actually managed to keep up with revenue in 2012, with dip experienced in 2013, 2014.

This dip in revenue right after switching to subscription based business represents “Fish model” and during this transition company must “swallow the fish” (I think they mean raw fish, not cooked) as the revenue curve temporarily dips below the operating expense curve before climbing back up.

Management teams chasing after quarterly numbers generally don’t like to look at that fish. They would just avoid it all together. There are boards and investors to consider, not to mention the fact that traditional unit-based, Wall Street measures them on strict GAAP – realized profits, not growth rates based on deferred revenue. This was the challenge Adobe team faced in 2011. So how did they do it? Well, once executive team committed, they relentlessly overcommunicated the vision. Essentially drowned controversy worth transparency. Their transition was well documented by Bloomberg BusinessWeek How Adobe Got Its Customers Hooked on Subscriptions.  50,000 customers even  signed a Change.org petition demanding the company abandon the scheme (subscriptions). Despite all this pressure, executive team pressed on. Today Adobe brings $6 billion in revenue and 80% comes from subscriptions. Melissa Webster, program vice president for content and digital media technologies at researcher IDC, calls it a great example of “smart paranoia.” Says Webster: “If they didn’t reinvent, someone might reinvent them out of business.” Indeed “swallowing the fish” for Adobe paid off and now enjoying  much closer relationship with customer and easier access to their raw needs to continue to innovate.

 

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