In today's Washington Post, Larry writes that continued breaches involving the nascent Internet of Things is holding consumers back from fully adopting the new technology. Given the intimate relationship many smart items will have with the lives of their owners, privacy and trust are essential conditions for Big Bang adoption.
In June, Presidential candidate Hillary Clinton surprised business leaders by issuing a detailed Technology and Innovation platform. Tech issues rarely feature in Presidential campaigns, but Clinton seems determined to shore up an already strong position in Silicon Valley by promising an administration that recognizes the singular role disruptive innovation has played in driving U.S. economic growth over the last two decades.
Clinton’s plan may have been designed to deflect concern here in California and other innovation hubs about growing criticism of the tech economy from the Obama Administration and Democrats on the left. Just a day after Clinton released her plan, for example, Sen. Elizabeth Warren, who has taken an increasingly active role in the campaign, directly attacked leading technology companies including Apple, Amazon and Google, hinting that they had grown too large to escape the blunt instrument of antitrust to break them up.
Overall, the Clinton agenda is something of a dog’s breakfast, mixing unlikely promises for significantly increased federal spending in education, basic research, and infrastructure with more specific reforms in such hot-button areas as immigration, intellectual property, and tech infrastructure.
Though nearly every aspect of the plan would require a cooperative Congress, there is still much to admire in the particulars, and, more to the point, much that innovators and their investors have wanted to hear from Washington for a long time:
Immigration - Among Silicon Valley’s highest priorities, for example, Clinton promises “comprehensive” immigration reform, including a pledge to “staple a green card” to the diplomas of non-U.S. masters and PhD students in science and engineering, “enabling international students who complete degrees in these fields to move to green card status.” No technology company would object to that proposal.
Patents - Clinton also pledges to fix the badly out-of-balance patent system, although here the promised reforms are modest. Clinton endorses legislation floating around Congress that would break the stranglehold of the notoriously plaintiff-friendly Eastern District of Texas, which openly courts patent trolls and frivolous litigation. But there is no mention of larger patent issues, notably the scaling back or eliminating patent protection for software and business methods, an invention of the courts and the patent office in recent years. The consensus, even among many leading software providers, is that those new categories have done far more harm than good.
Copyright - On copyrights, Clinton promises a law that would “unlock” a ballooning number of older written and audio-visual works that, thanks to repeated and retroactive copyright extensions on behalf of Disney and other large rights holders, can’t be licensed or used because no one knows who owns them anymore. (Liberation of so-called “orphan works” would have been enabled by a proposed settlement in a case involving wholesale scanning by Google Books, but that settlement was scuttled in 2011. Google went on to win the case outright.) The Clinton plan is silent, however, on scaling back the expanding copyrights that created the orphan works problem—and others—in the first place.
The Sharing Economy - During the primaries, both Sen. Bernie Sanders and Secretary Clinton raised repeated concerns about new “sharing economy” services, including Uber and TaskRabbit, that help contractors and freelancers coordinate their work through network technologies. Sanders dismissed these services as “unregulated” and said he had “serious problems” with Uber in particular. For her part, Clinton said last year that network-based employment raised “hard questions about workplace protections and what a good job will look like in the future.”
Clinton’s Tech and Innovation plan is more measured, if non-committal, about whether she sees the sharing economy as a direct attack on unions and labor regulators. She promises only to “convene a high level working group of experts, business and labor leaders to recommend how best to ensure that people have the benefits and security they need no matter how they work.” Depending on what specific “benefits and security” her experts believe casual workers need, that could mean either an endorsement of the sharing economy or its death by a thousand regulations.
Broadband Infrastructure - The recent decision by the Federal Communications Commission, at the urging of the White House, to transform Internet access into a public utility has already spooked investors, who spent nearly $1.5 trillion over the previous twenty years continually upgrading broadband infrastructure even as America’s roads, bridges, water pipes, gas mains and electrical grid—the actual public utilities—fell catastrophically behind. (D.C.’s own Metro system, once the city’s pride and joy, is largely closed for the summer for repairs.)
On that front, the Clinton agenda gets a mix grade. On the positive side, the candidate strongly endorses reducing regulatory barriers (largely at the state and local level, however) that unnecessarily deter more and more efficient private infrastructure, including “dig once” and “climb once” policies to encourage faster deployment of, respectively, fiber optic cable and next-generation mobile equipment.
But at the same time, and even as the Clinton plan waves in the direction of continued Internet self-governance under the multistakeholder process that has worked so well, Secretary Clinton “strongly supports” the idea that Internet access should be closely regulated as a utility. As I’ve argued before, that approach is bound to slow both the speed and size of investments in continued infrastructure improvements.
Radio Spectrum for 5G Networks – On the plus side of the ledger, Clinton promises to continue President Obama’s support for next-generation mobile networks, known as 5G, which utilize densely-packed cellular antennae and higher-band radio spectrum to offer as much as 100 times the speed and capacity of today’s wireless Internet. Secretary Clinton promises to release spectrum warehoused by the federal government itself, and to support a mix of licensed, unlicensed, and shared new frequencies that will accelerate nascent 5G applications including the Internet of Things and autonomous vehicles, as well as increasingly high-definition video.
Internet Adoption - The Clinton plan also promises to expand broadband entitlement programs aimed at closing what remains of the digital divide. But these programs, including the troubled Broadband Technology Opportunities Fund, have had limited (if any) success. So far, they’ve produced little besides wasted taxpayer billions and corruption.
While everyone shares the goal of universal broadband adoption for all Americans, the solution doesn’t come from raising taxes on consumer phone bills (currently approaching 20%!) to fund poorly-managed programs to subsidize rural and low-income communities. Among those who do not have a broadband connection at home, as repeated surveys make clear, availability and even price are rarely cited as the principal reasons.
Non-adopters—especially older Americans—don’t have a broadband connection, it turns out, largely because they don’t want one. Rightly or wrongly, digital hold-outs don’t see the Internet as having any relevance to their life. That was a problem identified as long ago as 2010 in the visionary National Broadband Plan, from which the Clinton agenda cribs frequently without acknowledgment. And it’s one problem government could play a crucial role in solving through public education and the President’s bully pulpit. But not from throwing more money at federal contractors.
As Secretary Clinton’s wish list suggests, what Silicon Valley really wants from both presidential candidates is not more government, but less. In many cases, much less.
That desire, of course, distinguishes tech from most special interests, and Clinton’s team deserves praise for getting it at least partly right. For years, I’ve watched visiting politicians looking to partner with the venture community grow disappointed to hear from tech leaders across the political spectrum that they don’t actually want new federal programs or legislation aimed at promoting innovation.
What they really want most is to be left alone; to be allowed to continue to practice the kind of largely unregulated experimentation that the Mercatus Center’s Adam Thierer calls “permissionless innovation.” That wise policy has been strongly supported by a bi-partisan coalition since the mid-1990’s. It has done more than any grant or subsidy could to promote U.S. leadership in the Internet and other emerging technologies, in sharp contrast to Europe, where centralized innovation planning and micromanagement have had the opposite effect.
But Washington’s commitment to permissionless innovation has been under attack, particularly in the last few years. As the innovation economy increasingly becomes the economy, lawmakers can’t help but refocus their attention there. Law enforcement and intelligence operations, at the same time, are increasingly wary of open networks and encrypted communications (about which the Clinton plan hedges), generating some very public fights with innovators in the name of both consumer privacy and national security.
The closer the next President--whoever it turns out to be--can hew to the U.S.’s longstanding if battered commitment to let a thousand Silicon Valley start-ups bloom, the better off everyone will be, in the short as well as the long run. Political pandering aside, what the innovation ecosystem really needs is a reboot of the 1990’s promise to leave the Internet “unfettered by Federal or State regulation” – a policy that now needs expansion to equally high-potential disruptors in energy, materials, robotics, genomics, health care, transportation and manufacturing.
That, in any case, is the lesson of the last election in which innovation policy played a major role—the election, that is, of that other Clinton.
For my Innovations column in The Washington Post this week, I noted four critical issues holding back consumer adoption of the Internet of Things.
As Paul Nunes and I explain in Big Bang Disruption, transformative technologies must not only be better and cheaper than the products and services they replace, but also need to overcome consumer inertia. That's particularly so when the disruptor affects many industries, or when the worse and more expensive products are so familiar to consumers that they won't replace them even for a better and cheaper alternative, at least not without strong incentives to do so.
Those incentives include life-changing new applications of the products. In other words, the disruptor, to reach the rapid take off we refer to as the Big Bang, must do more than just replace existing and still-working products. It must do so in a way that adds new functions and new applications that the existing technology can't possibly duplicate.
Each of these characteristics is present in the emerging market for an Internet of Things, where everyday objects will be enhanced with some measure of computing power--processing, memory, and the ability to communicate over the Internet with other devices, sending and receiving data (often very small amounts of data) through the cloud. When fully realized, the IoT has the potential to dramatically remake the supply chains for many consumer and industrial goods, revolutionizing every step from design to sourcing to manufacturing, distribution, retailing, and service.
And it will do so across industries, affecting financial services, manufacturing, energy, consumer goods, agriculture, and more.
But so far, the IoT has made only incremental progress. What's holding back the Big Bang?
In the Post article, I identify four obstacles--some technical, some legal--that are keeping consumers from jumping fully on-board with connected, smart homes, wearable health and fitness, and other high-potential IoT applications. If developers and their investors want to see big returns and jump-start the connected device revolution, they'll first have to design solutions for each:
- Interoperability – As is typical with emerging technologies, every Internet of Things vendor hopes to establish itself as the industry standard for interactions with other networks and other products. Competing industry groups have also sprouted up, hoping to eliminate incompatibilities by offering an open, neutral set of communications and data exchange rules anyone can follow. Some Internet of Things vendors are trying to build products that follow everyone’s standards, while others are leaving the problem to third party developers. The standards war will undoubtedly be resolved, but in the interim consumers are understandably hesitant to make big investments in new systems.
- Mobility – Internet of Things devices may not need to communicate large volumes of data, but the sheer number of connected items and their need for constant interaction can’t be supported even with today’s fastest 4G LTE mobile networks. That’s one reason mobile providers and their partners are investing billions in next-generation 5G networks, which will increase network speed and capacity by orders of magnitude, optimizing performance for both the close quarters of your home and the potential range of autonomous vehicles on the road and in the air. In the United States, both Verizon and AT&T have already announced tests of 5G technology. But the new networks require more and different ranges of radio frequencies, which only the FCC can allocate.
- Invisibility – Sleep Number isn’t actually the first company to offer a smart bed; they’re just the first to build the sensors right into the mattress. Earlier efforts required users to remember to wear separate devices that were uncomfortable to sleep with or extra equipment that had to be installed under an existing “dumb” mattress. To work for all consumers, technologies that transform markets have to become invisible — just part of the scenery. So Sleep Number’s mainstreaming of the disruptive technology is a necessary condition for mass adoption. Ironically, the more disruptive the technology is, the sooner it tends to disappear.
- Security — Already, a few early products with inadequate protection have led to some embarrassing security breaches, including a hacker who gained control over a “smart” baby monitor to talk to the baby. The Federal Trade Commission and other regulators are already circling the emerging industry, threatening pre-emptive action. But as Kohlenberger points out, a widely-deployed Internet of Things will generate tremendous improvements in health outcomes, traffic fatalities and home security, among others. If lawmakers overreact to the Internet of Things’ growing pains, it may unintentionally delay both the development and adoption of technology that will actually improve the safety and security of activities that today rely on fallible human operators.
As these issues are resolved, the Internet of Things is likely to experience the same kind of dramatic takeoff that followed the introduction a few years ago of smartphones that users actually enjoyed owning. Once the value proposition and technical obstacles are overcome, if history is any guide, consumer adoption for the Internet of Things will happen on an expedited schedule.
In other words, watch for the bang.
The fall issue of Democracy Journal features an essay by Larry on the growing divide between disruptive innovation and technology policy, part of a series on the digital future.
In "Fewer, Faster, Smarter," Larry argues that the continued explosion of digital innovation has created a public policy crisis for the 21st century. New regulators are coming face-to-face for the first time with disruptions that challenge decades or more of compromises and cozy relations between government and industries now being reconstructed.
Innovators in the sharing economy, the Internet of things, artificial intelligence, the quantified self, self-driving cars, drone aircraft, digital currency and 3D printing are already feeling the pinch as regulators try to shove round disruptors into square laws, often with the encouragement of incumbents.
Some of these issues may well rise to the surface in the 2016 Presidential elections. Already, Larry has been asked several times to comment on what the elections mean for Silicon Valley, which candidates best represent technology interests, and how technology will affect the election. While it is far too soon to answer many of these questions, there's little doubt that innovators and investors are watching closely--or ought to be!
See also "Silicon Valley is a Political Issue in the 2016 Election" (TechCrunch, August 20, 2015), Andrew Keen's interview with Larry. And see 'Which Presidential Campaign is Winning Over Silicon Valley? 'None of Them'" (L.A. Times, Sept. 11, 2015), which quotes Larry on the current prospects and their campaigns.
(Larry's April 16th article for The Washington Post last week has been reprinted frequently...including here!)
Few revolutions can be said to have lasted for half a century, or to have wrought disruptive change at a predictable pace.
But that’s exactly the case with the digital revolution, which has seen computing get dramatically faster, cheaper and smaller every few years since the 1950’s.
The remarkable prophecy that anticipated that phenomenon is known as Moore’s Law, which turns 50 on April 19. In a four-page article for Electronics magazine, long-time Intel chief executive Gordon Moore (then head of R&D at Fairchild Semiconductor) made his famous prediction that, for the foreseeable future, the number of components on semiconductors or “chips” would continue to double every twelve to eighteen months even as the cost per chip would hold constant.
Moore originally thought his prediction would hold for a decade, but half a century later it’s still going strong. Computing power — and related components of the digital revolution including memory, displays, sensors, digital cameras, software and communications bandwidth — continue to get faster, cheaper, and smaller roughly at the pace Moore anticipated.
Moore’s Law is driven, as Moore explained, largely by economies of scale in producing chips, improvements in design, and the relentless miniaturization of component parts. The smaller the chip, the cheaper the raw materials. Transistors, the building blocks for chips, have fallen in price from $30 each 50 years ago to a nanodollar today—roughly $0.000000000001.
That low price encourages more uses, which raises production and lowers costs in a virtuous cycle. Miniaturization also means a shorter distance that electricity has to travel to activate software instructions. Smaller, denser chips are consequently not only cheaper to make, they use less power and perform better. Much better. With each cycle of Moore’s Law, computing power doubles, even as price holds constant.
It is the prime example of what Paul Nunes of Accenture and I call an “exponential technology.” It’s hard to get your head around the impact of a core commodity whose price and performance have improved by a factor of two every two years for half a century. (Compare that to commodities such as oil or meat, which get worse and more expensive.) One example I use is to help make Moore’s Law concrete is to compare the performance, cost and size of the Univac I, sold in the mid-1950’s, with devices available now.
Today’s home video game consoles, for example, have roughly the same processing power of one billion Univac I’s. Even without adjusting for inflation, the cost of a billion Univacs in 1950’s dollars would still exceed the entire money supply of the world today. And had it been possible to buy that many computers in the 1950’s, you would have needed an area about the size of Iceland just to store them. But the consoles cost about $400, and fit comfortably on a shelf. And they are marketed not to the world’s largest enterprises but to children — who probably have a much better idea how to use a billion Univacs anyway.
There are few if any examples of basic commodities improving on so many dimensions at once, and certainly not at such a rapid and predictable pace. As Moore reflected recently in an interview with IEEE Spectrum, “The semiconductor technology has some unique characteristics that I don’t see duplicated many other places. By making things smaller, everything gets better. The performance of devices improves; the amount of power dissipated decreases; the reliability increases as we put more stuff on a single chip. It’s a marvelous deal.” A marvelous deal, that is, for consumers. Every few years, the capabilities of our growing number of electronic devices — smartphones, TVs, game consoles and other consumer electronics — doubles, while the price for the previous generation collapses.
Thanks to Moore’s Law, tomorrow’s digital products are certain to be better and cheaper. Your newest phone does far more than your last one. It has a better display, more memory, longer-lasting battery and more sensors for tracking you and your environment. The price for 12 megapixel digital cameras has fallen from $24,000 in 1995 to a few hundred dollars today. Mobile broadband networks, built of electronic components, have advanced steadily from 2G to 3G to 4G and beyond, even as unit costs for data transmission plummet.
Last year, a writer for The Huffington Post found a 1991 newspaper ad for Radio Shack and calculated the cost of 15 devices listed would have been, back then, over $3,000. Today, all 15 — including a camcorder, a CD player and a cellular phone — have been replaced by superior equivalents on smartphones costing, unlocked, about $600. And the smartphone does far more, in a single, smaller, integrated device.
Economists call this phenomenon “consumer surplus” — the excess value of a good beyond the actual price a consumer pays; what you would have been willing to pay, in other words, if you had to. The difference between the price for the phone and $3,000 represents one estimate — and a conservative one — of the consumer surplus created by the deflationary effects of Moore’s Law.
Our expectation of increasing consumer surplus, however, generates a tremendous disruptive force for computer-related businesses. We’ve now been trained to anticipate computing’s relentless drive into the realm of the better, cheaper and smaller. That puts profound pressure on the makers of most consumer electronics to deliver new and innovative products every year or two — or else.
And while both manufacturers and the consumer benefit from the falling cost of digital components, in most cases consumers are keeping the lion’s share of the savings.
As a result, businesses in the most digital industries, including communications, electronics, software and digital entertainment, long ago stopped worrying about what their competitors are going to do next, but rather what the technology is going to make possible. Put another way, they all share the same competitor — Moore’s Law.
Over the last few decades, that phenomenon has expanded. With the advent of cloud computing and the global Internet, most information-intensive industries have also been subjected to radical and continuous transformation, or what we have called “Big Bang Disruption.”
As the cost of collecting, storing, processing and displaying information falls, the supply chains associated with these businesses are being rebuilt on digital platforms. Think of financial services, newspapers and magazines, music and film, health care, education and even government services, where both the threats and opportunities seem to multiply overnight.
As Moore’s Law enters its second half-century, the echoes of that disruptive tsunami have now reached the shores of even the most non-digital businesses. In the next phase of the digital revolution, manufacturing is about to be upended by 3D printing and nanotechnology. Agriculture is deconstructing in response to better and cheaper sensors, while transportation is girding itself for revolutionary change from autonomous vehicles, smart roads and drones.
And every dumb item in commerce, from individual light bulbs to your refrigerator, is now getting low-cost computing intelligence and network connectivity, a phenomenon known as the Internet of Things.
Just law month, Amazon introduced the Dash, a system of free WiFi-connected buttons that users can attach to everyday items such as razor blades and laundry detergent. When it’s time to replace the item, you simply press the button to order it.
Over time, of course, the computing and communications intelligence will be built in, along with the ability for the item to monitor and report on its own condition. You’ll be able to track electricity and water usage, be alerted when something needs maintenance, and authorize the things in your life to automatically reorder themselves when needed.
As trillions of items communicate their status up the supply chain, meanwhile, every step from design to production, distribution, marketing and sales will be reinvented to become vastly more efficient, generating still more consumer surplus.
In every one of these examples, Moore’s Law is the life-blood of the innovators. It’s the uber-disruptor.
So even as the better and cheaper revolution is a boon to consumers, it’s causing increased anxiety for businesses, especially those just now starting to feel its full effect. Every industry must learn to keep pace with exponential improvements in core commodities, and to respond to increasingly demanding and influential consumers.
For executives trained to manage to incremental improvement — the guiding principle of the industrial revolution — exponential innovation presents both a profound opportunity and an existential threat. Gordon Moore used to say that if the auto industry had been built on exponential technologies, today’s cars would get a million miles per gallon of fuel and travel several hundred thousand mph. The cost of a new Rolls-Royce would be cheaper than the cost of parking it overnight. (It would also be only 2 inches long.)
That’s kind of change is not for the timid. In a world dominated by Moore’s Law, many businesses don’t respond in time, instead going down with the ship. Entrepreneurs thrive while managers retire.
Consider some of the many goods and services — some digital, some physical — already displaced by your smartphone, including address books, transistor radios, remote controls, taxicab dispatchers and maps.
Not only have these staple items gone completely obsolete, but so have the businesses that made, sold, advertised and serviced them. Look down the main shopping street where you live, and you’ll see empty storefronts that used to house office supply stores, movie theaters, camera shops, bookstores, travel agents, currency exchanges and more. Big box retailers and shopping malls have been marginalized; even electronics retailer Radio Shack finally succumbed to digital alternatives built from the components the stores sold.
And in the next generation of digital disruption, that list may be supplemented by post offices, ATMs, locksmiths, real estate agents and rent-a-car offices.
Some enterprises are flexible enough to make the transformation, and do so elegantly. Philips Lighting, for example, anticipated the exponential power of LED lighting far enough in advance to get out of the incandescent business it both created and dominated for over a century, becoming a different company in the process.
Kodak, on the other hand, which held some of the best patents for digital photography, still couldn’t bring itself to commit to a future without film and chemicals, and wound up going from industry leader to bankruptcy in just a few years.
In that sense, Moore’s Law has acted as a kind of accelerant to economist Joseph Schumpeter’s often-quoted observation that capitalism proceeds in “perennial gales of creative destruction.” As every business becomes digital, the storms become that much more frequent and that much more intense.
This “new normal” for business won’t be ending any time soon. Despite regular predictions of the end of Moore’s Law, the engineers just keep finding new ways to keep it going, using new materials, improved manufacturing techniques, and ever-greater economies of scale.
Gordon Moore, for one, is confident. When asked about the rule he initially predicted would stay in force for a decade, Moore recently said. “I have never quite predicted the end of it. I’ve said I could never see more than the next couple of generations, and after that it looked like [we’d] hit some kind of wall. But those walls keep receding.”
As consumers, we’ll happily walk through each wall as it fades away, revealing the next great innovation.
But businesses will have to learn to jump.
Larry testified on Feb. 25th before the House Energy and Commerce Committee on the future of the Internet and on proposed legislation that would limit the ability of ISPs to manage network traffic in ways that would harm consumers.
A video of the hearing is available, along with Larry's written testimony.