A PRIMER ON TECHNOLOGY TODAY By Michael S. Malone
The world of high technology moves so fast, and operates in so many diverse industries, that it’s easy to miss the forest for the trees.
I mean: what is the relationship between, say, Hewlett-Packard and Twitter, or Facebook and Intel, Google and today’s newest iPhone apps? How do all of these diverse enterprises fit together in the ecology of the electronics industry? Who matters, who doesn’t, who is winning and who is losing? Which represent the future, and which are the lumbering dinosaurs of the past?
You aren’t going to find answers to those questions in electronics trade magazines – they’re too busy trying to cover all of the changes taking place in their own niche markets. And though you can sometimes get clues from the mainstream business press, it too often focuses on individuals and current corporate success stories – and faisl to look at the larger trends at work.
So, for once at least, let’s turn the process upside down and use this column to look at the Big Picture in the technology world – and then drill our way down. With luck, by the time we’re done, we’ll not only have a better understanding of where the electronics industry is now, but where it is going next . . .and who the big winners are likely to be.
Okay, let’s take the longest perspective of all: We are currently in the sixth decade or so of the Digital Age, which began in the 1950s with the general application of Booleian algebra (the presentation of mathematical equations as 1’s and 0’s) to mainframe computers. The Digital Age supplanted the Analog Age (continuous measurement using real numbers, like those on a speedometer or pressure gauge), which had essentially been in effect since pre-history.
Digital computation has proven to be so powerful (it works well with electrical switches because it translates to ‘on’ and ‘off’ states) that it has increasingly supplanted most other kind of measurement. Thus, the Digital Age could last centuries into the future. The one potential replacement may be a return to some kind of analog computation derived from biological systems or some kind of phase shifting at the quantum level, but the likelihood of either is still pretty low.
At the next lower level of focus, we are currently in the second phase of the Internet Era, the so-called Web 2.0. There have been about six of these eras in the Digital Age: Instruments, Computers, Semiconductors, Personal computers, Systems & Software, Personal Electronics and the Internet –each building upon and incorporating the advances of the eras before them. Thus, low-cost microprocessors (themselves based on the architecture of mainframe and mini computers) and memory chips made possible the construction of small low-cost ‘personal computers like the Apple II and games like Atari’s Pong – which in turn created a vast demand for new operating systems (like Windows), networks, games and applications (like word processing).
Though the Internet has been around since the annus mirabilis of 1969, the Internet era really doesn’t begin until the widespread adoption of the World Wide Web in the early 1990s. The first phase of the Internet era focused on tools (email, etc.) and electronic commerce, and culminated in the Dot.com Bubble. The second phase, the so-called Web 2.0, which began in 2002, is all about social networking — the creation of new cultural institutions built around the broadband interlinking of millions of people around the world. The leading companies in this phase include MySpace, Facebook, Twitter, etc., the biggest of them among the largest groupings of individuals in human history. The third phase, which we are just entering now, and will likely last for the next five years, will be the evolution of these social networks into (both explicitly and surrepticiously) global commercial platforms and marketplaces.
Meanwhile, while all of this has been going on, the tech industry also continues to experience two large forces and three different cycles.
The two large forces are Metcalfe’s Law which states that the value of networks grows exponentially to their number of users, and the more famous Moore’s Law, which states that the performance of semiconductor chips doubles every couple years.
The three cycles are, first, a four year cycle of boom and bust that reflects the changing ratio of bookings to billings of semiconductor chip orders. Second, the standard ten year cycle, found in all industries, of the centralization and decentralization of organizations. And third, a trade-off, usually also about once per decade, between eras of infrastructure development and content development.
Currently, we are in the midst of yet another biannual turn in Moore’s Law, with a new generation of processor chips emerging from the likes of Intel and AMD; we are beginning to come out of the latest industry downturn (which followed a boom from 2005-2007); in a period of corporation centralization (following an era of decentralization concurrent with the 2002-2007 expansion of the global marketplace); and approaching the end of the current phase of infrastructure development.
The period from the end of the Dot.com era (2000) saw the temporary end of the dominance of small start-up companies dedicated to consumers and other end-users, and the resurgence of Big Iron – giant electronics companies focused upon the systems underlying the wired global marketplace.
As noted, we are coming to the end of that period, as signaled both by the explosion of new applications for various platforms from the Apple iBook and Google’s Android in smartphones, and for the many social networking sites– and by the recent burst of acquisitions by, and jostling between, the biggest players in the infrastructure world (such as Cisco’s newly announced move into HP’s turf). The former will get all of the attention, but the latter will define the U.S. economy for the next few years.
Now, let’s make our focus a little tighter. To best understand this infrastructure war that defines out times, you need to imagine a pipe with a valve at each end. Leading into this pipe are a collection of hoses; coming out of this pipe is a similar collection of hoses.
The Internet is that pipe. For the most part, that pipe is owned by Cisco. The lines going into that pipe are the many information sources that feed the Internet – i.e., giant databases and information caches, ranging from web sites to news to books to videos to music files. Apple owns several of these lines. So do the big social networking sites. Twitter is the hottest company around these days because it managed to construct an important new information source out of nothing. Most of these lines have huge volumes, but as yet little profit – but that will soon change.
Meanwhile, the lines themselves – as well as the pipe and the valves – are built from material mostly supplied by Intel (which is why it is still probably the most important company on the planet).
The valve on this end is the world’s data centers. This valve is mostly owned by Hewlett-Packard – but Cisco and IBM (note its recent move to buy Sun Microsystems) are making their move.
Now, go down to the other end of the pipe, and the second valve. It represents user access to the Web. This valve is owned by Google – which is why, as the chokepoint of almost all of the Internet, that company is so influential and valuable. But that’s only the beginning, because Google’s avowed goal is to not only maintain control of this valve, but to also capture as much of the rest of this infrastructure world as it can, especially those incoming lines. That’s why Google went into the phone business with Android and why it paid for the chronically unprofitable YouTube – and likely soon will acquire Twitter. Google also, by the way, owns a large percentage of the world’s data centers . . .and now you see why everyone’s becoming increasingly afraid of Google.
At this far end of the pipe, the many lines exiting represent the various and growing list of output vehicles for all of this information: personal computers, smartphones, laptops, Blackberries, game consoles, etc., etc., as well as the whole wireless infrastructure, which is increasingly merging with the Web. To various degrees, the big players here are Apple, Nintendo, Sega, HP, Dell, Sony, Microsoft, Nokia, Samsung, RIM, Sprint, and so on. Outside of the 360 console, where does Microsoft fit in all of this? It doesn’t, which is that company’s problem. Ditto for Yahoo. It’s the same strategic mistake Silicon Graphics and Sun made during the last infrastructure era – which is why the former just died and the latter is being fire-saled.
And how about all of those Web content providers – Amazon, eBay, AOL, Flickr, bloggers, and thousands of other sites? They may seem a big deal, but put in perspective they are right now merely the sludge moving through that big pipe.
But that will soon change. By the end of next year (or the year after, depending upon how much the government screws up the economy) the infrastructure needed to deal with 3 billion global consumers, as well as the convergence of telephony and the Web, will largely be in place, and the various battles between the Big Iron companies will have ended in mergers, triumph or defeat.
After that the cycle will swing back – and most of the ‘Teens will belong to the content providers – with the first big boom coming in 2011-2012 (again, if the government doesn’t screw things up), right after the next generation of chips. It will feature a burst of thousands of small new companies in yet another period of decentralization.
And so, if I was a college kid right now, I’d stay away from the engineering school and head over to liberal arts. The next era belongs to the artists and creators.