January 18, 2018
By Haydn Shaughnessy
It was an honour to present to the Austin Forum. As Jay told me quite a few times, this is a smart audience. Over and above that, for those of us who live a continent away, Austin resonates with
us like no other US city. To be here and get a chance to suggest an idea or two about the future was a privilege (event slides here).
Over the past decade, four themes have emerged in my work, and I wanted to share those themes at the Austin Forum because they point to developments that are both worrying and exciting.
About 25 years ago, I belonged to a group within the EU that was trying to find a way to counter the scale-effect of the US economy: 350 million people. No European country at that time had more than 60 million and of course the continent was divided by language and culture.
Scale meant low unit cost for products, an easier ramp up when getting new products to market, therefore a faster time to revenue, larger revenues of course, and more investable capital. European political and economic policy for four decades has been aimed at creating a market with similar scale-effects to the US.
Now fast forward to tomorrow. In the economy of the near future, China will sit in the middle of a market of 6 billion people. In that emerging highly-scaled market, Chinese platforms like Alibaba and Tencent have a big competitive advantage over American companies, similar to the one enjoyed by the US over Europe.
On Single’s Day last November, Alibaba managed over 200,000 sales transaction per second, at peak flow. That’s every time your heart beats, another 200,000 sales. Total transaction value for that one day was around $25 billion.
My first prediction is that in 2018 we will become much more aware of this scale advantage and of the need to seek ways to counter it. We need to seek ways to counter it because Chinese economic policy is very aggressive and because US foreign policy for a long time now has been too focused on conflict at the expense of exporting the single most important American attribute: the capacity for frequent change and reinvention.
The US will not win in a highly scaled economy built on non-democratic principles. But that authoritarian governmental system is falling into place across the Eurasian landmass. To the south of China’s new Silk Road, India with its population of 1.2 billion and growing. To the South West, Africa whose population will grow from 1.2 billion of 2.4 billion over the next 30 years. An increasing proportion of the African infrastructure is paid for and built by Chinese firms. Add 2.4 to 1.2 to the 1.4 of China and you already have 5 billion. Into that you need to add South East Asia. China is expanding its influence down through Pakistan, India and Africa and into Central and Eastern Europe.
Recently the British and French governments have also been making overtures for a closer link up with China. The countries of central and eastern Europe have a new policy. It is called “Look East.” Can you imagine, despite being members of the EU, the people who lived under Russian communism for 60 years are now looking east again, to China for sure, but Russia comes with that particular ticket. Every week now trains pull out of east London and various German cities on the eight-day ride to Beijing. The creation of one land mass with markets of billions is well under way.
China, in other words, is already functioning at hyperscale. In order to function in that market, Chinese companies are redefining the way business gets done.
For example, the Chinese drone company DJI is the dominant global player, owning 85% of the commercial drone market, in large measure because it does what is so easy in China. Need a few hundred developers or 20,000 customers to provide feedback? That turns out to be an easy situation to engineer in a population of 1.4 billion. China is developing a form of participatory capitalism that helps accelerate all kinds of innovation.
The effect, where China focuses its attention, can be to push US companies to the sidelines. In January 2018 GoPro pulled out of drone manufacture. All commercial drone makers in the US have scaled back. The Chinese IoT platform IngDan provides a one-stop shop for companies globally to experiment with IoT components by parsing orders into the Chinese manufacturing base. In three years, it has done this for 16,000 IoT projects. In both cases, you see both participation and highly accelerated and scaled innovation.
In parallel with these developments, we’ve seen cryptocurrencies and ICOs suddenly switch people onto the idea that something marvelously unpredictable is also happening. Here, I think, is the answer to platform scale.
It is now possible for people to say: we know a community of people has value, and if we are all convinced of that we can issue a coin and begin to transact that value and then grow it. It’s a sign of significant change not rooted in mega-enterprises. It is the return of an old idea about collaboration and distributed, decentralised authority that we saw right at the beginning of the Web with companies like Napster. That idea keeps being overtaken by business-as-usual but it never goes away. Like many other people, I believe this is what will make the difference in the economic battles to come, and apologies for that terminology.
China is powerful and influential in Africa, and is becoming so in India and Europe. But the future may lie with people like us. It could lie with folks like us saying, we can engineer decentralised enterprises that address the most significant challenges of the day.
It is not such a challenge to transact 200,000 purchases a second. It’s big but it is on a scale. Scale presents challenges but it is do-able. It is more of a challenge to say how can we create the organisational forms that would allow us all to reap the benefit of, say, tackling the global challenge of environmental restitution?
Environmental challenges are only part of the problems we face. We face an antibiotic resistance challenge. We have a food industry that pollutes our food with carcinogens. A cosmetics industry that does the same. And weather related disasters are making business uninsurable. Clearly the business-as-usual economy is not nearly as rational as we are encouraged to believe. With coin offerings we have the chance to create alternatives that people can vote on by purchasing coins.
Maybe that means we can create the decentralised organisation that helps us move beyond a food industry that invites us to slowly kill ourselves with what we eat. Or maybe create the alternative oncology that thrives because it addresses the massively differentiated nature of cancer types? Or we can find a way to positively influence healthy behaviour so that the system of health does not look like a delivery channel for drugs like steroids or antidepressants.
The debate in a city like Austin will always veer around technology because it is a great technology city but it is also a cultural city where the creativity is diverse. In place of a future built around centralised enterprise of the past, Austin is likely to become a hotspot for decentralised businesses that focuses on what really needs to be put right.
Strange to relate but a sensible economy is what’s really weird. Did any of us ever imagine the means of being more economically rational would just emerge, in the way that they have?
The new version of the old industrial game is not markets totalling 350 million but a competitor economy serving markets of billions. I think smartening up to face that competition is all about creating the ecosystems that are motivated to do good. We’re not there yet by any means. Coin offerings are too driven by speculation today. But the answer is to figure out and advocate the right value system. It’s simple. ICOs will become the medium for better health, better food and a better planet.
Haydn works at the leading edge of business economics and strategy for global institutions, enterprises and startups. He is the author of Shift: A Leader’s Guide to the Platform Economy and Flow: A Handbook for Change-Makers. He was hosted on his trip to Austin by Williams Technology Group.