04/10/2017 1:44 PM AEDT | Updated 04/10/2017 1:44 PM AEDT

Soon Our Devices Will Know Us Better Than We Know Ourselves

Everything is about to change.

Bloomberg via Getty Images

Here's a thought: in the not too distant future, your Kindle could have face-recognition sensors that record what makes you laugh, cry or frown. Amazon will then sell you stuff based on your reactions. Your books will be reading you, even as you read them.

Welcome to the digital age, where big data, analytics and algorithms know you better than you know yourself. While machine learning has made our lives more convenient, experts are divided on whether advances in technology will be good for us over the longer term.

Some futurists worry that super-intelligent machines could discard us altogether one day. Others think a hi-tech nirvana awaits, where artificial intelligence will solve all our problems, even death.

President Eisenhower once said that "pessimism never won any battle", so I'll side with the optimists for now. My focus is on the ideas of the American economist, Jeremy Rifkin. If he's right, the way we do business, organise government, educate our children and interact with each other is about to change, and for the better.

The third industrial revolution.

In his thinking about the future of technology, Rifkin noticed that the really big economic shifts in history have one thing in common: breakthroughs in energy, communications and transport technologies at around the same time.

During the first industrial revolution in 19th Century Britain, advances in steam technology led to the invention of the steam-powered printer and the steam locomotive, which in turn led to the creation of the mass media and the railways. These breakthroughs were also underpinned by a new energy source in cheap coal.

In the second industrial revolution in the 20th Century United States, electricity led to the development of the telephone, radio and television. A new kind of energy, cheap Texas crude, spurred the invention of a new form of transport: motor vehicles powered by the internal combustion engine.

An even more seismic revolution is now underway. The convergence of renewable (especially solar) energy, the communications internet and self-driving electric vehicles is giving rise to a technology platform called the Internet of Things: the embedding of computing devices into everyday objects which send and receive data through the internet.

More than 20 billion devices already link farms, mines, the electricity grid, production lines, transport networks, warehouses and recycling systems to the internet. By 2030, Cisco predicts up to 500 billion devices will be connected.

The key takeout is that every part of our economic and social system will soon be linked via sensors and software to the IoT platform. The implications are staggering. Everything is about to change.

The paradox of capitalism.

Even capitalism. It turns out Marx was (partly) right. Capitalism contains the seeds of its own decline -- if not demise. But it isn't the exploitation of workers. It's extreme productivity. Put another way, capitalism has become too good at what it does.

The problem revolves around an idea called zero marginal cost: the price at which an additional unit can be produced without an increase in the total cost of production. Until recently, no-one thought about the possibility of technology becoming so advanced that marginal costs would be reduced to near zero, making goods and services almost free and abundant after fixed costs are taken into account.

This can be tricky, so I'll explain with a practical example. Remember 1999? It was a good year for movies, with 'The Matrix', 'American Beauty' and 'Fight Club'tearing up the box office. But the performances of Keanu, Kevin and Brad weren't the most important things in the entertainment industry. The guy we should have been watching was an 18-year-old insomniac called Shawn Fanning.

In a mad dash of creativity, Fanning stayed up for 60 hours straight writing source code for his file-sharing website. Napster created a digital network that allowed millions to share music for free, devastating the profits of the music industry.

This same phenomenon soon bulldozed the business models of the movie companies, print newspapers, television and book publishing. More than 3 billion consumers now produce and share their own music, videos, pictures and ideas on their smart phones and computers, nearly for free, bypassing traditional sources of news and entertainment altogether.

An even more extraordinary thing is now happening. Zero marginal cost is crossing over from the digital world to disrupt the business models of industries in the real world, like manufacturing, energy and education.

As Rifkin notes, enthusiasts in garages around the world are making products using 3D printers, recycled plastic and open-sourced software. Millions of households are producing and storing their own renewable energy, even selling it back into the grid. And more than 6 million of us are heading online to enrol for free in university courses taught by some of the finest professors in the world.

The collaborative commons.

If a 3D printer can create almost anything for little cost, where is the status in owning a cupboard full of possessions? The economic system best suited for a connected world, where many goods and services are almost free, is the collaborative commons: a digital version of the sharing economy used in most hunter-gatherer societies.

A move towards a more socially responsible economy is already in train, as the Internet of Things creates greater opportunities for collaboration and inclusion. Rifkin points to the growing use of social media to share ideas and information, and the use of cooperatives to share cars, homes, tools and toys.

As machines take more human jobs in manufacturing, retail and transport, new employment opportunities will also lie primarily in the collaborative commons. Jobs that strengthen social capital like education, health, child care, environmental protection, and care for the elderly will increase in popularity and status.

So what of capitalism itself? I suspect Rifkin pushes the implications of the sharing economy's growth too far. I doubt the capitalist system will be relegated to the role of "niche player" as he suggests.

But his most important insight is correct: zero marginal cost will continue to strangle top-down, vertically integrated business models that previously enjoyed fat margins and significant pricing power.

Remember the Kindle example I used at the start of this article? The most successful businesses in the future will be aggregators of data like Amazon, Apple, Netflix, Google and Xero, which make profits by hoarding our personal information to offer us ever more tailored goods and services.

The digital age is already raising difficult questions about how technology is shaping our lives. I'm not sure if Rifkin is right, but I hope he is. A world based around community, sustainability and material abundance sounds pretty good to me.

A practical take-away.

To help digest these ideas -- and to move them from the theoretical to something useful -- here's a list of questions you should be asking to prepare for the future:

  1. How will you transition from industrial age technologies, like television and oil, to digital age technologies, like electric cars and renewables?
  2. How will you adapt your business model to take advantage of the Internet of Things? In a connected world, your opportunities are bigger than you realise. But so are your threats. Does your organisation understand the danger posed by zero-marginal cost? If relevant, are you investing in transitioning your business to an aggregator model?
  3. Have you invested in your social license to operate? Social media and greater environmental awareness means unethical or irresponsible behaviour can do permanent damage to a business.
  4. Have you thought about how to benefit from the growth of the sharing economy? Can you collaborate with likeminded partners to share opportunities and build social capital?


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