The Great Confusion: The Digital Economy Continues to Surprise

Petri RouvinenCEO, Etlatieto Oy

eMBA Forum 2014: Digital economy and digital marketingTurku School of Economics, OP-Pohjola Hall12 March 2014, 9.45-

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“ Narrative Science can make an equity research analyst 20 to 100 times more productive by using computers to turn data into narrative that sounds like a person wrote it … ”http://www.forbes.com/sites/tomgroenfeldt/2013/09/05/lots-of-data-one-analyst-many-reports-narrative-science/

Hasbro suffers as action figures lose sheen in iPad era

http://www.news-press.us/hasbro-suffers-as-action-figures-lose-sheen-in-ipad-era/

GE’s Radical Software Helps Jet Engines Fix Themselves

http://www.wired.com/design/2013/10/three-design-trends-ges-using-to-make-software-for-jet-engines-and-wind-turbines/

Bigpicture

1011010111000010

3D

IoT

Nexus of Forces

110

× ICT investment× Inv. Org & People

Brynjolfsson& Hitt 2003. Computing Productivity: Firm-Level Evidence. Review of Economics and Statistics, 85, 793-808

… but digi is different Unlike steam/electricity, continues exponentially

Applicable/replicable/expandable across activities

Scarcity Abundance Scaling Winner-take-all The long tail, niches

Keen, volatile competition Bang-bang market outcomes

Will we everinvent anything

thisuseful again?

Cover of the The Economist in 12 Jan. 2013 (modified)

Bigpic in ICT

Towards Industry/Technology Convergence

Source: Hernesniemi, Lammi, Ylä-Anttila & Rouvinen (ed.) 1996.Advantage Finland: The Future of Finnish Industries.

Taloustieto (ETLA B 113, Sitra 149).

I’ve seen the God…

… or is it the Devil?

January 2007Photo: v.gd/D1ZYvoNote: iPad in 2010.

Nexus of Forces & Tech Converge opened a huge unmapped &

unconquered domain

It’s all about coded info… … and ways to

monetize it

The main battlesare fought in digitalcontent & services

Source: The Economist (1 Dec. 2012). Technology Giants at War (Briefing): Another Game of Thrones. Vol. 405, No. 8813, Pp. 23-26.

Corporations

Systems/hardware

Specific solutions

Digital evolution

Consumers

Content/Services

Platforms/ecosystems

Digital revolution (cf. legacy)

1011010111000010 Power

1850

1860

1870

1880

1890

1900

1910

1920

1930

1940

1950

1960

1970

1980

1990

2000

2010

Cost per Computation

1940 … … … … 2000

€100,000,000,000

€1

Source: Lehti, Rouvinen & Ylä-Anttila 2012, Suuri Hämmennys, Taloustieto (ETLA B 254), page 89.

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$595 in 1982 (app. $1,500 in 2013 $) $300 in 20133,128 as powerful C64$4.7million: cost of PS3 power in C64s (in 2013 $)

1011010111000010 Big Data

VolumeVelocity Variability Nikulainen 2013. Big Data Revolution: What Is It? ETLA Brief 10.

Yes&

No

The next two slides are directly based on the work of

Mark Huberty

… Reality?

Digital exhaust (cf. McKinsey)

Overlaps & differences

New stuff, new spaces

Rough approximations

Assumptions …

N = All

Online = Offline

Today = Tomorrow

Behavioral understanding

→

→

→

→

→

Source: Mark Huberty

3rd order biz modelInfo Eyeballs Adds

2rd order biz modelSell stuff (volume+profit)

1st order biz modelSpecific input & output

Source: Mark Huberty

Management, marketing & salesbecomes more scientific acrossbusiness sectors

More can be experimented/tested & good solutions may be replicated

Industries are born but more importantly, old ones are transformed (e.g., insurance)

2013 2014

3.5

15.0Series 1

Mobile Google Searches Millions p.a., Finland Source: Kauppalehti

In 2013 Americans spent more time online on mobiles (vs desktops/laptops)

89% smartphone and 81% tablet online time within apps (source: Nielsen)

Cloud ComputingAccessing something

directly over the Internet

Richard Stallman (GNU founder): It’s stupidity ... that we’ve redefined cloud computing to include everything that we already do. http://goo.gl/PZ77

InfrastructureIaaS (processing, storing,

managing)

Public Private

SoftwarePaaS/SaaS (web-based

OSs & other apps)

An illusion of infinite computing resources on demand

Applications decoupled from physical infrastructure

Computing from a fixed to a variable cost

Source: Kushida, Murray & Zysman 2011. Cloud Computing and Implications for Public Policy. Journal of Industry, Competition and Trade.

The biggest implication:

Reduction in the cost of entry particularly in the digital domain

3D

IoT

×

€3 €300

Special thanks to: Jukka Tuomi, Aalto Univ., BIT Research Centre

Complexity & flexibility at no cost

Solutions that are impossible with other techs

No material waste (EADS/Airbus: 90% less of ti v.gd/ys7AeZ)

1 piece90 180 270 360 450 540 630 720 810 900 990$10

$100

$1,000

$10,000Traditional: 1st duck: $ 10,000.00 Next ones: $ .20

3D: 1st duck: $ 20 2nd duck: $ 20

... ...

Source: Anderson (2012). Makers: The New Industrial Revolution. Crown Business.

$

Sowhat?

Case: Media Corporation(which current has an emphasis on print publications)

” In my opinion this is our last round of formulating corporate strategy this way …

… Internet constantly fragments & alters our operating environment in ways that make it impossible to find sufficiently quiet waters to do the necessary ground work and then the strategy itself. ”

The Chief of Corporate Strategy of a large media corporation

0000–2020

2021–2025

2026–2030

2031–2035

2036–Viivoitetuilla alueilla sanomalehtien ennakoidaan kuolevan kaupungeista aikaisemmin kuin muilta alueilta

Newspaper Extinction TimelineThe year when printed newspapers are expected to be marginalized as sources of information

Lehti, Rouvinen & Ylä-Anttila 2012, Suuri Hämmennys: Työ ja tuotanto digitaalisessa murroksessa, Taloustieto (ETLA B 254).

Lineation indicates a time difference between rural & urban areas.

Tech offers no benefit, if old habits do not dieNeeded: Deep crisis of the old way; new entrants

Good news: Easier entry & smaller efficient scale

Bad news: Ever-intensifying market competition Modern markets best seen as an infinite # of niches rather than few masses

Ever-more complicated value creation & capture – towards an experimental/entrepreneurial economy

Increasing productivity differences (& unemployment?)Inequality & polarization among individuals & firms

“ This is a world on fast forward, a world of permanent technological revolution.

Countries like the UK and Germany will only succeed if we have a relentless drive for new ideas and innovations.”

UK Prime Minister David Cameron CeBIT 2014, Hannover, 9 March 2014

The true bottleneck: Ability to see possibilities just beyondthe horizon

Thank

You!Comments, remarks & discussion are more than welcomed:

Petri.Rouvinen@ETLA.fi +358–50–3673474