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SECTION I
Foundations
For all the breadth of todayâs technology and business landscape, a surprisingly small number of general principles underlie many patterns of behavior. These principles, however, derive from several areas of the social and behavioral sciences that are usually considered in parallel rather than jointly. At base, the paradox of information technology lies in how much more potential remains to be explored, particularly in the economic realm.
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CHAPTER 1
Introduction
If you watch exponential change for long enough, the effects grow beyond comprehension. In the late 1990s the technology analyst George Gilder was fond of telling the story of âthe second half of the chessboard.â Here is one version:
The story highlights one of the critical facts of contemporary life: Improvements in digital technologies are possible at scales never experienced in previous domains. As a 2005 advertisement from Intel pointed out, if air travel since 1978 had improved at the pace of Mooreâs law of microprocessor price/performance (one of Gilderâs doubling technologies), a flight from New York to Paris would cost about a penny and take less than one second. Cognitively, physically, and collectively, humanity has no background in mastering change at this scale. Yet it has become the expectation; the list later in this chapter should be persuasive.
Given the changes of the past 40 yearsâthe personal computer, the Internet, Global Positioning Systems (GPS), cell phones, and smartphonesâitâs not hyperbole to refer to a technological revolution. This book explores the consequences of this revolution, particularly but not exclusively for business. The overriding argument is straightforward:
- Computing and communications technologies change how people view and understand the world, and how they relate to each other.
- Not only the Internet but also such technologies as search, GPS, MP3 file compression, and general-purpose computing create substantial value for their users, often at low or zero cost. Online price comparison engines are an obvious example.
- Even though they create enormous value for their users, however, those technologies do not create large numbers of jobs in western economies. At a time when manufacturing is receding in importance, information industries are not yet filling the gap in employment as economic theory would predict.
- Reconciling these three traits will require major innovations going forward. New kinds of warfare and crime will require changes to law and behavior, the entire notion of privacy is in need of reinvention, and getting computers to generate millions of jobs may be the most pressing task of all. The tool kit of current technologies is an extremely rich resource.
Cognition
Letâs take a step back. Every past technological innovation over the past 300-plus years has augmented humanityâs domination over the physical world. Steam, electricity, internal combustion engines, and jet propulsion provided power. Industrial chemistry provided new fertilizers, dyes, and medicines. Steel, plastics, and other materials could be formed into skyscrapers, household and industrial items, and clothing. Mass production, line and staff organization, the limited liability corporation, and self-service were among many managerial innovations that enhanced companiesâ ability to organize resources and bring offerings to market.
The current revolution is different. Computing and communications augment not muscles but our brain and our sociability: Rather than expanding control over the physical world, the Internet and the smartphone can combine to make people more informed and cognitively enhanced, if not wiser. Text messaging, Twitter, LinkedIn, and Facebook allow us to maintain both âstrongâ and âweakâ social tiesâeach of which matters, albeit in different waysâin new ways and at new scales. Like every technology, the tools are value neutral and also have a dark side; they can be used to exercise forms of control such as bullying, stalking, surveillance, and behavioral tracking. After about 30 yearsâthe IBM Personal Computer (PC) launched in 1981âthis revolution is still too new to reflect on very well, and is of a different sort from its predecessors, making comparisons* only minimally useful.
For a brief moment let us consider the âinformationâ piece of âinformation technologyâ (IT), the trigger to that cognitive enhancement. Claude Shannon, the little-known patron saint of the information age (see Figure 1.1), conceived of information mathematically; his fundamental insights gave rise to developments ranging from digital circuit design to the blackjack method popularized in the movie 21. Shannon made key discoveries, of obvious importance to cryptography but also to telephone engineering, concerning the mathematical relationships between signals and noise. He also disconnected information as it would be understood in the computer age from human uses of it: Meaning was âirrelevant to the engineering problem.â2 This tension between information as engineers see it and information that people generate and absorb is one of the defining dynamics of the era. It is expressed in the Facebook privacy debate, Googleâs treatment of copyrighted texts, and even hedge funds that mine Twitter data and invest accordingly. Equally important, however, these technologies allow groups to form that can collectively create meaning; the editorial backstory behind every Wikipedia entry, collected with as much rigor as the entry itself, stands as an unprecedented history of meaning-making.
The information revolution has several important side effects. First, it stresses a nationâs education system: Unlike twentieth-century factories, many information-driven jobs require higher skills than many members of the workforce can demonstrate. Finlandâs leadership positions in education and high technology are related. Second, the benefits of information flow disproportionately to people who are in a position to understand information. As the economist Tyler Cowen points out, âa lot of the Internetâs biggest benefits are distributed in proportion to our cognitive abilities to exploit them.â3 This observation is true at the individual and collective level. Hence India, with a strong technical university system, has been able to capitalize on the past 20 years in ways that its neighbor Pakistan has not.
Innovation
Much more tangibly, this revolution is different in another regard: It has yet to generate very many jobs, particularly in first-world markets. In a way, it may be becoming clear that there is no free lunch. The Internet has created substantial value for consumers: free music, both illegal and now legal. Free news and other information such as weather. Free search engines. Price transparency. Self-service travel reservations and check-in, stock trades, and driverâs license renewals. But the massive consumer surplus created by the Internet comes at some cost: of jobs, shareholder dividends, and tax revenues formerly paid by winners in less efficient markets.4
In contrast to a broad economic ecosystem created by the automobile industryârepair shops, drive-in and drive-through restaurants, road-builders, parking lots, dealerships, parts suppliers, and final assembly plantsâthe headcount at the core of the information industry is strikingly small and doesnât extend out very far. Apple, the most valuable company by market capitalization in the world in 2011, employs roughly 50,000 people, more than half of whom work in the retail operation. Compare Appleâs 25,000 nonretail workers to the industrial era, when headcounts at IBM, General Motors, and General Electric all topped 400,000 at one time or another. In addition, the jobs that are created tend to be in a very narrow window of technical and managerial skill. Contrast the hiring at Microsoft or Facebook to the automobile industry, which in addition to the best and the brightest could also give jobs to semiskilled laborers, tollbooth collectors, used-car salesmen, and low-level managers. That reality of small workforces (along with outsourcing deals and offshore contract manufacturing), high skill requirements, and the frequent need for extensive education may become another legacy of the information age.
In the past 50 years, computers have become ubiquitous in American businesses and in many global ones. IT has contributed to increases in efficiency and productivity through a wide variety of mechanisms, whether self-service Web sites, automated teller machines, or gas pumps; improved decision making supported by data analysis and planning software; or robotics on assembly lines. The challenge now is to move beyond optimization of known processes. In order to generate new jobsâmost of the old ones arenât coming backâthe economy needs to utilize the computing and communications resources to do new things: cure suffering and disease with new approaches, teach with new pedagogy, and create new forms of value. Rather than optimization, in short, the technology revolution demands breakthroughs in innovation, which as we will see is concerned with more than just patents.
There are of course winners in the business arena. But in the long run, the companies ...
