‘We are now in the early stages of the Fourth Industrial Revolution which is bringing together digital, physical and biological systems.”
The world is about to go through the greatest transformation in its history.
The Digital Economy
According to a recent report by Accenture, ‘the digital platform economy’ currently accounts for 22% of the words’ economy and is predicted to go up to 25% by 2020.
The digital economic era looks much different than the industrial era:
There is no vertical or market that the great digital transformation won’t touch. And no business model in the future will be valid without some platform thinking, we are moving towards the platformization of everything in the economy – human capital, accommodation, transportation, health and wellness, the list goes on:
“Currently, there are 140 unicorns, start-ups valued at $1bn or more, which are worth more than $500bn combined. Clearly, the platform business model has great potential, and increasingly more companies in every industry become aware of this potential.” The Startup Unicorns and the Power of the Digital Economy
While most of today’s most notorious platforms – Airbnb, Uber, etc – are asset-light, this doesn’t mean that businesses who are asset-heavy can’t benefit massively from the platform economy. They just need to refocus their business model on areas where platformization can drive efficiencies.
One of the big shifts as part of the Fourth Industrial Revolution (4th IR) will be the ‘decentralization of everything.’ There are three key elements that are driving this decentralization:
- Liberation of Knowledge
- Liberation of Capital & Distribution
- Liberation of Geography
When a 12-year-old in Africa can start learning code on YouTube or via Coursera and teach themselves to build robots by the time they are 18, knowledge becomes liberated. When capital can be raised on platforms (crowdfunding) from individuals all over the world, and sales channels can be rerouted online, capital and distribution become liberated. And with the emergence of ‘digital natives’ and online communication tools (Skype, social networks, Slack, etc), suddenly where you are in the world starts to become less important and geography becomes liberated. Everyone will be able participate in this new economy regardless of who they are or where they were born.
On the back of the sharing economy, digital education and online communication tools, we start to move towards a more peer-to-peer (P2P) model where intermediaries and middlemen start to become irrelevant. In a world where knowledge, capital & distribution, and geography become liberated, we will be able to choose what we should learn, what companies we want to invest in (big or small) and what we want to work on.
Humans + Robots
The great fear and debate of the 4th IR focuses on three key areas:
- the rise of Artificial Intelligence (AI) and the corresponding impact on society
- the loss of jobs of humans to robots
- a clear benefit to elite members of society, limited/zero benefits to everyday citizens
We don’t want a Silicon Valley world of AI, and that, unfortunately, is the vision being pitched by many in the ‘elite’ class. What we want is a world where complex problems get solved by AI problems that humans themselves can’t solve in areas like medicine, economics, scientific, climate. This would then free us up to focus on the things that we want to be doing with our lives: leisure, love, exploration of earth and the galaxy around us.
To get to this level will require a massive re-education of the workforce, for people of all ages, races and cultural identities. Robots + automation is an unstoppable force, no labour union or government can stop it because the competitive pressure it will put on margins; to employ an antiquated labour force will make a product/service uncompetitive in global markets. Instead, we need to train young people to code and think critically about complex problems, the era of the textbook/exam education model is officially obsolete. We need to re-educate people in heavily affected sectors (automotive, transportation, logistics) to perform value-added functions and give them business training so that they can start to understand the shift rather than rebel against it. And the state itself needs to be heavily invested in the advancement of sectors where it can have the most benefits to its citizens (health, energy, economics), in whatever form that investment takes. Only then will we see distributed benefits and a post-Google world where the AI-era becomes something that can produce tangible benefits for all members of society.
Meta Business Model
From a business perspective, there is a lot that needs to be taken into account about the 4th IR because it changes the whole business model, presenting both upsides and downsides.
Incorporating technologies such as blockchain or AI (meta-technologies) into a company will dramatically lower any back-office and logistical costs. This will obviously help improve gross margin and operating efficiency.
The challenge will be in relation to global competition. The R&D and employee training required to implement these breakthrough new meta-technologies will require a big investment. But the benefits will be exponential when the 4th IR kicks in, as the companies that are ahead of curve can move so swiftly to capitalize on any emergent opportunity in any market. Companies that rest on their laurels will get smoked by the competition; technology strategy will determine market winners and losers more quickly than at any point in history.
In summary, the cost side of the equation will go down, but there will be vastly more competition for the revenue pie in most industries. To get ahead of the curve will require significant foresight and investment in prototype products/services, R&D and employee training.
From a societal perspective, the 4th IR is a deflationary force that kills margins, jobs and tax revenues. But this is the opportunity of a lifetime for entrepreneurs, intrapreneurs and investors, especially for those in the young generation. The economics of society are changing, the definition of growth is being redefined, the role of ‘the machines’ can propel humanity to new heights.
If we look at a business model as a Micro within the Macro, surrounded by the corresponding ecosystem (externally) and people that can make it happen (internally), we can see that this Macro will enable businesses to be created for cheaper, scale faster, and create more distributed benefits for society than at any point in history.
If we assume that the 4th IR facilitates the rise of collective intelligence, collaborative governance, and the resolution of complex, global problems, then we will move into an era of unprecedented wealth, prosperity, and opportunity for all. If we assume that the opposite occurs, and the 4th IR further skews the benefits curve to those who already possess assets and wealth, then the social friction will make business very difficult to conduct on a global basis. Either way, opportunities will emerge for savvy and tenacious entrepreneurs to create business models that combine the natural creative abilities of humans with the operational efficiencies of machines, resulting in new ways of living, working and exploring the world around us.
Business Model Innovation (BMi) has been a persistent topic on the Lumos blog since the beginning. BMi is about developing new ways to bring existing product and services to existing markets. One of the key advantages of BMi is that most of the innovation happens beneath the surface, making it difficult to understand and replicate: