Digital DisruptionIBISWorld Newsletter

August 2015Phil Ruthven AM, Founder

The term digital disruption is in common use these days, describing a phenomenon that is posing a threat to businesses. Indeed, in some sectors it is proving terminal.

Where are the music stores and video outlets? Newsagents and booksellers are also under long-term threat. Ditto a lot of traditional retailing as shopping online gains traction. Australia is headed for 10% or more retail sales via the internet by 2020. Some European countries will be at double that percentage by the time we enter the third decade of this tumultuous century.

Print accounted for 50% of all main-media advertising as recently as the year 2000, but is likely to finish with just 16% by the end of this decade. Internet advertising will have risen from close to zero to almost 50% over the same 20-year period, as seen in the first chart.

100

80

90

0

50

10

40

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70

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30

Perc

enta

ge

Year

Print

Radio

FTA TV

Pay TV

Internet

OutdoorCinema

SOURCE: CEASA & IBISWORLD 1/08/15

Main Media Advertising Expenditure1900-2020

1900

1930

1940

1950

1960

1990

1970

1980

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1910

2020

2010

2000

Now that is a truly dramatic change – the fastest displacement of technology in living memory. The Fairfax group invested over $500 million in new printing facilities a decade and a half ago, recovering just a tenth of that investment via property sales recently. Ouch.

Yes, the digital age is disruptive and even destructive, but it is also enabling a raft of new industries, products and employment. All new technologies – or utilities – do both these things. For those fearing the disappearance of jobs, don’t.

As the second chart reveals, over the past five years, Australia created eight times more jobs than it lost – yes, eight times more – and is well placed to do the same over the next five years. And yes, the new jobs are in new industries. So the message is: don’t just stand there, do something, move!

The third chart reminds us of the many ages we have passed through over several centuries, and the accompanying new utilities that have helped the creation of new products, new industries and new jobs.

SOURCE: ABS & IBISWORLD 1/08/15

Australia’s New & Lost JobsFive years through June 2015

5.0%Mining

47.0%Agriculture

37.7%Manufacturing

0.3%Utilities

8.7%Info Media

& Telcos

4.7%Construction

10.5%Education

4.8%Admin & Support Services

19.2%Prof & Tech

Services

2.3%Transport/

postal

4.9%Govt/Safety

8.1%Hospitality

26.9%Health

4.2%Retail

Net new jobs 870,400

Lost jobs128,200

New jobs998,600

6.6%Wholesale

3.4%Arts &

Recreation

3.2%Personal/

Other

0.8%Finance &Insurance

1.7%Rental/

Real Estate

2000

1600

0

1780

1800

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GD

P ($

bill

ion)

SOURCE: IBISWORLD 01/08/15Year end June

Australia’s Ages of Economic ProgressGDP/capita at 2010-11 constant prices

HuntingAge

AgrarianAge

IndustrialAge

InfotronicsAge

EnlightenedAge

Advanced ICT, analytics,

embedded intelligence,biotech and

nanotech

Service industriesand ICT

Electricity andtelephony

Commercial transport

It is worth noting immediately that there has been exponential growth over this period – in real terms – suggesting an increasing rate of change.

Australia exited the age of hunting and gathering as late as the early 19th century with the arrival of European settlers, with the Aboriginal population (over 800,000), through hunting and trapping, dominating the economy until the 1820s.

Our agrarian age of agriculture, mining, banking and commerce between the 1820s and the mid-1860s was the first age to be helped by a ubiquitous utility: commercial transport. It came in two stages: water transport (rivers and coastal) and road, then rail in the late 1840s.

Our industrial age of manufacturing, construction and utilities began around 1865 and finished a century later in the mid-1960s. The then-new ubiquitous technology was production power, and it too came in two stages: firstly water and steam power; then electricity from the late 1880s (but more substantially from the 1920s). Electricity changed everything in businesses and households. It was a disruption to the old products, industries and jobs, but it led to the creation of many more than were lost.

We have been in the current new age – the infotronics age – for 50 years already, since 1965.Jobs in manufacturing have dropped from 30% of the workforce to just 8% this year, replaced by millions of new jobs in service industries, which are often more highly paid.

The new ubiquitous technology-cum-utility is of course information communications technology (ICT). While it only accounts for between 3% and 4% of GDP, its reach and effect across businesses, government and households is having the same impact that electricity did over a century ago. It also has arrived in two stages. The first stage lasted from 1965 to 2006 in the form of hardware, software and slow telecommunications.

The second stage, from 2007 onwards – to the end of this new age around the middle of the century – has seen the advent of digital communication protocols; fast broadband; smart hardware such as mobiles, tablets, PCs and TVs; and AI software. It is this combination in the second stage of the new infotronics age that has given rise to the term digital disruption.

It is fast and it can be destructive, but it is more facilitatory – and it is unstoppable.

Some of the products that have emerged in the new age are like electronic guardian angels, such as heart pacemakers, hearing implants, bionic eyes (soon), lifesaving DSC and ABS on cars, CCTV security systems, and a myriad of others here and on the way.

But the application of digital disruption to old and new products and industries is more far-reaching in terms of the economy and jobs. As said earlier, the new age is centred on services. More specifically, it is functions outsourced from households and businesses, and services outsourced to us from overseas (such as tourism, education and health services).

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Households are spending more than $35,000 per annum on functions and services that were done on a DIY basis in the mid-1960; such spending now totals over $330 billion. This is more than households spend on goods at all retail stores. And as we know, those retail stores’ sales are being diluted by online shopping.

Many, if not most, of the new household services are underpinned by the new digital era utility. Tertiary education can be added to those services being now delivered in virtual form, thanks again to digital disruption.

We can also add business outsourced services to the new age list – passing the $600 billion mark this year, with most benefiting from the new utility in one way or another. The same goes for new exported services, approaching the $100 billion mark.

An exciting time to be alive, but not asleep at the wheel: the digital era – creating digital disruption – can be a double-edged sword.