June 17, 2013, Churchill Club, Santa Clara, CA—The Churchill Club held a panel session on economically disruptive technologies. Michael Chui from McKinsey distributed McKinsey's report on disruptive technologies and noted the highlights. Panel members included Bill Reichert from garage Technology Ventures, Barry Schuler from DFJ Growth, and Hal Varian from Google.
The report identified a number of technologies with economically transformative potential over the next 12 years. The big categories included energy, IT-related technologies, robotics, bio-tech, and nano-tech. All of these likely to change the way we interact with the world and benefit the consumers and individuals while not really doing much for companies.
One challenge is to find ways to discover the combinations and interrelations across the various fields. Policy makers will have to greatly accelerate their processes to keep up, in a manner similar to the issues we now have with privacy and security.
Lead time to adoption?
Schuler noted that the time to adoption is never as fast as desired. A transformative technology takes about 10 years to get to mass markets. Innovation proceeds at a faster rate that the markets can absorb them, and there are many failures along the way.
Is the pace of change increasing?
Schuler declared that the rate of innovation is increasing over time, but adoption rates are staying fairly flat. Big businesses are resistant to major changes.
Reichert illustrated personal data and feelings are involved in transformative changes. The most successful new technology in the 20th century was radio. It achieved 60 percent penetration and adoption in 6 years from its first release. TV was the second most rapid new technology adoption.
Radio was the ultimate plug-and-play technology in the 1920's. Now, in Silicon Valley, we have no perspective on adoption rates. Our lack of vision leads to the many misses since we see the technology and its use as all pervasive while the average consumer is technology blind. We can do a lot in our labs, but we have to address the human and regulatory organizations to speed up adoption.
Schuler proposed that technologies like movies can demonstrate new technologies to the average person. People just want the benefits of the technology, and are not interested in the path to delivery. They only want new technology when it is ready for easy use. Some of the latest technologies like "make" are different, because the users are helping to plan the path to adoption.
Energy?
Reichert endorsed the challenges since all of them are exciting. Unfortunately, the market doesn't appreciate the advances and is generating a lot of hype. For example, solar was supposed to change the world by providing low cost energy from the sun without government subsidies. The reality is that deployment is constrained by financial and other issues. The industry has already gone through lots of stuff, and the biggest parts of industry consolidation and shakeout have already passed.
Schuler denied the potential for solar. Its current state is based on our style of innovation and driven by capitalism. Solar is exiting because there is no way to store the energy at night so it doesn't work half of the time. Energy use needs a smart grid that is like the Internet with demand response and reliable forecasts of demand. Solar thermal is a possible alternative. Bio-fuel is a better potential. The latest work uses algae to create oil. The problem is that the incumbent oil companies are working to keep their hold on the space.
Varian suggested that in the next ten years, we will see more cheap natural gas. Gas will replace coal and can be easily stored and transported. Over time, we will see other applications for natural gas, such as for truck fuel. Fracking will help for the next 30 years.
Schuler disagreed with the natural gas proposition. The changes in the industry are due to the steady increases in the price of oil, now over $100 per barrel. The costs control the supply and demand, and can throttle innovations in other energy sources. Gas is the current darling because of stimulus programs and earlier investments. Any liquid fuel replacement needs to pay attention to the costs of oil. Changes can push investments out of the range of potential returns.
Reichert added new designs for nuclear energy may be good, but the newest designs are still untested.
Schuler noted that nuclear was ok until Fukushima.
Varian offered other cheap energy sources without new regulations are worth considering. Candidates are liquefied natural gas and solar.
IT and knowledge work?
Varian noted that NSF and DARPA funded a lot of the initial work, autonomous cars were from the DARPA grand challenges. Google hired a lot of Stanford grad students to add to their IT units. Streetview was moved into commercial use from a lab. We are already seeing incremental changes in cars; auto park, collision avoidance, etc. We will see commercial availability of autonomous cars in the next 5 years. Drivers are the main problem for cars, but this change will need legal and insurance acceptance and proof that the autonomous cars are safe and reliable.
Reichert declared that autonomous cars are not the issue, but the lack of a viable business model. In a city like San Francisco, there is also the parking issue.
3-D printing?
Schuler claimed that the existing additive technologies are interesting. The open access nature is helping inventors and increasing the rate of innovation. The area has world-wide collaboration and many open standards for the hardware and software. Crowd sourcing is working. Manufacturing always goes for economies of scale, but now a $20k machine can make almost anything.
At the same time, 3-D printing is too geeky. In the next decade, there will be more types of files to download and other materials will emerge. The field combines IT, big data, and personalization, forcing adjustments to the way we buy and making purchases more personal. The maker movement is enabling more artisanal works to be started.
We also are seeing 3-d printing in the bio-synthesis field. Bio-printers are making on-demand vaccines and these drugs can be manufactured on site, providing "instant" delivery.
Varian added the ability for mass customization.
Reichert desires earbuds that fit. The availability for on-the-spot manufacturing brings us closer to the Star Trek replicator. The question for additive manufacturing is what is the best path and time frame for adoption. The whole area is still at the toy stage, and not even close to Wal-Mart quantities. The logistics and other economics are good, and overnight delivery is possible.
Schuler offered the combination of open-source Arduino processors and 3-D printing will make invention cheaper to do. The advent of crowd funding allows inventors to test the markets before going into any type of production. Silicon valley VCs have been avoiding hardware, but now they are becoming irrelevant in the hardware spaces.
Opportunities and disruption?
Varian proposed that companies be on their toes, diversify, be agile and willing to fail. Bankruptcy laws drive innovation.
Small and big companies?
Schuler stated that all companies start small. The good ones created disruption, and gain strength by fixing weaknesses. Google is masterful, Microsoft is losing its main enterprise customers to cloud service. AOL had critical mass and controlled access until broadband mostly eliminated dial-up services. To go to broadband meant that the company would have negative margins for new customers.
Varian suggested that Kodak was undone by its own inventions.
In the grand visions of advanced technology, how much reliability is needed?
Varian opined that systems need to be fault tolerant.
Reichert mentioned that an autonomous car has to not crash. One challenge is lawyers and insurance.
Varian observed that we already have many of the components for the autonomous car, smart cruise, collision avoidance, self parking. If we can get separate lanes for autonomous cars, it would be easy to make the transition and work in a controlled environment.
Schuler offered a level of safety for cars that doesn't let people get hurt. People are the weak link in transportation but the market psychology and acceptance are the big issues.
China is planning to move 250M people from rural areas to the cities?
Schuler said that some things are easier in a control government. This would not be possible in the US.
Chui noted that urbanization increases productivity and quality of life. Rapid urbanization needs more smart city technologies and government at all levels to work together. The local mayors need to see the great potential.
Varian declared that manufacturing, exports, and investments need to change to a consumer-focused economy for the move to be viable.
Impediments to deployment?
Varian mentioned that regulations are a problem. Like doctors, legislators need to do no harm and avoid problematic areas. These are local issues. Europe is slower to change than the US. Primary areas of tension are economic, political, and regulatory.
Reichert cautioned that technology is a case-by-case issue. The challenges are related to local culture and societal norms. Some areas like nuclear energy because it reduces the need for fossil fuels. The big issues will be in privacy and security. The corner cases cause transformations in the frameworks of the technologies.
Varian postulated that cloud computing is an example of local differences. It can reduce entry costs for companies, but is essentially not allowed in Europe because of the restriction of data crossing borders.
Health care?
Varian declared that the NSF and DARPA have funded remote and robotic surgery and robot-assisted care. These investments are a win for the budget, because they reduce the rate of increases in healthcare.
Reichert claimed that healthcare is not a technology issue, but human and policy. The technologies enable changes at all levels, but don't change the cost basis.
Schuler proposed that science and technology are on the cusp of a revolution in areas like medical science and genomics. Once we get past the regulatory issues, we might have to consider genetically modified people to get to a cure for cancer. We can now read and write DNA, leading to changes in society, regulatory environments, insurance, and peoples' willingness to modify themselves.
Disruptive to VCs?
Reichert argued that the premise is wrong. Big themes need big money. VCs will not transform the energy economy, but can support incremental progress and aggregate in more areas. This is a collaborative issue, the big corporations and government invest much more that VCs.
Varian agreed that some technologies need big investments to create the environment. A fab or big data center will cost over $1B, so we need a process to create infrastructure here. Innovation flows from infrastructure.
Software productivity has been flat for the last 20 years?
Schuler noted that hardware has always been faster than software. Software has a sloppy element of creativity and humanness that will be lost in a self-programming machine. There is lots of shared code in new software.
Reichert agreed that software has not lived up to its promise, but is still making progress. There are lots of software people.