Imagine that in 1975, or some other time before the advent of the Internet, you wished to know the name of Isaac Newton’s dog. Your only option would have been to go to a large library and start reading all of Newton’s biographies one by one, crossing your fingers and hoping that one of his biographers would have been sufficiently interested in canine affairs as to mention Newton’s best friend in his book. You would know that the information you needed almost surely existed somewhere, but finding it would have been next to impossible. Or imagine being in a restaurant and hearing on the radio the last minute of a song you liked a lot. Your only option to find out the singer or the band would have been to wait for a radio station or TV show to put the song on the air again just as you were listening at some other time. And this could be never or take a long time. Even if the CD with the song were available at the record store around the corner, there would not be an easy way to look for it.
Today, it takes seconds to put the search on Google and find several pages dedicated to Diamond, Isaac Newton’s dog or use the Shazam app on your smartphone to identify the song and buy it online immediately. The same goes for books on Kindle or shows on Netflix. It is really a small miracle that we can find in less than five seconds a book that we want between millions of titles or a desired page among more billions of pages that currently exist on the web. Looking for a needle in the haystack is nothing compared to what we ask Google to do every day.
A Liquid World
Searching for a song or information on the web are examples of how the first wave of the Internet created a liquid market for information assets: if a digital product you need is available somewhere in the world, you can find it, pay it and start to use it with just a few clicks. Supply meets demand not through a physical store, but through an algorithm, and without regard to space and time that separate the buyer and the seller. The reason why Uber, Airbnb and other similar apps have been so prominent is that they are starting to bring this same liquidity to any physical asset, and even the world of work. This liquidity, in turn, can transform an industry dramatically.
BlackRock is the world’s largest mutual fund, with $ 4.59 trillion of financial assets under management. Its CEO, Larry Fink, recently explained the change as follow:
“For generations, young people all around the world have focused on acquiring two key pieces of property: a home and a car… With the advent of technologies like Uber and Airbnb, these long-accepted financial decisions may start to change. Why bother with the big upfront investment, the hassles of maintenance and parking, or the liability of owning a car, if you can have one available within minutes with one tap of your phone.
As more and more people use sharing services for transportation, for example, personal vehicles will become less important, both financially and in terms of status…
Think about the scale of this change—Uber was founded just five years ago. In another five years, car-sharing technologies could be replacing car ownership at a meaningful scale. That has significant implications for the global economy.”
Consider what really happens when you press a button to call a taxi for Uber. It is actually a search run by an algorithm except that, instead of being a phrase, the search term is the GPS location of the passenger and the vehicle. Taxis and passengers are scattered in the streets of the city just as the information you are looking for is lost among the millions of pages in libraries and websites.
In addition, just as Google personalizes your search based on your history and other factors to bring you the most relevant information, Uber takes into account a lot of contextual information while you are executing your order to bring you a taxi more directly and efficiently.
For example, Uber can analyze your travel history, whether it is raining or what the traffic patterns in the city are at this time. If you are asking for a trip from the airport in your city, Uber knows that the most likely place to go is to your home, but if you are elsewhere, you will probably go to a hotel. Just as Google uses the power of the algorithm to connect readers with articles and books no matter where they are, Uber connects taxi drivers with passengers and in the process creates a liquid market for millions of idle vehicles, bringing together the driver and and the passenger no matter where they are. In other words: Uber created liquidity for a category of physical goods. And this ability to provide liquidity to physical assets will now shake up one industry after another.
The Disruption and the Islands of Value
Reading this one may ask, “What is the idea here? None of this is new. Uber and the ‘technological disruption’ have been talked about for years and it is true, ‘disruption’ is a term that has become so overused to an extent that sometimes it means nothing concrete. However, one of the main reasons why it became useless is because ‘disruptive technology’ started to be used as a generic synonym of ‘powerful technology’ or ‘transformative technology’. To understand the utility of the concept of disruption it is important to keep in mind what it is that we are disrupting when we talk about disruption, and what we are referring to is a business model. In this sense, there are no disruptive technologies by themselves.
A technology is disruptive only in reference to a specific business model.
Was the Internet, perhaps the most paradigmatic example, disruptive for McDonalds? For BMW? Not at all. Not only was it not disruptive for these companies, it was something that helped McDonalds and BMW become more efficient in their business through integrating communications, logistics, human resources better. Was the Internet disruptive for travel agencies or for music distributors? In this case, the answer is yes, because Booking.com, iTunes, and other similar applications have replaced the entire business model of these industries.
Instead of thinking of disruption as something binary, assessing whether the technology is disruptive or not, it is better to think of the arrival of new technology as a tide that is slowly ebbing, revealing an underwater archipelago.
At first the highest islands come into view here and there, these represent the places where the value that the new technology is can contribute is greater, as is the case of GPS for which was first used in maritime navigation. As the tide goes, which represents the falling cost of technology, more and more islands begin to appear: first the island of GPS for cars, then the GPS for phones and finally Uber.
We can see this in action more recently with augmented reality. In 2012, Google premiered the Google Glass, the wearable device that was projecting images directly into your eyes. For a couple of years, the Glass was emblematic of the near future, an indispensable personal effect in tech conferences dedicated to all manner of disruption. In fact, one could not speak of technological trends without mentioning it. However, in January 2015, Google discontinued the project and now sometimes photos of people with Google Glass already look retro-futuristic. Many commentators noted that augmented reality, “was a failure” and yet the only thing that failed was that the mass market was not yet reachable with the price of 1,500 USD of the first iteration of the Google Glass, and the archipelago remained below the surface. With the benefit of hindsight in 2016, we know that augmented reality came roaring back when the concept was reinvented in inexpensive way as apps for your cell phone and the world briefly went crazy with Pokemon Go.
In a similar way, there will not be a concrete moment of “disruption” due to Internet of Things o uberization of the economy. Instead, there will be a sequence of impacts in different areas, some significant, others that fizzle away quickly and the main challenge is not just to see the potential which tends to be diffuse over time but to be the first to find these islands of value.