By: Neelima Mahajan
Remember what life was like in 1995? You met your friends in real life and didn’t just ‘like’ their photos on Facebook. You bought books at your local bookstore—not on Amazon. News didn’t break on Twitter—it was broadcast on television or radio, and if you preferred to read, you could wait for the newspaper the next morning. You’d consider yourself lucky if you had a mobile phone—no, not an iPhone, a push button feature phone of the kind you wouldn’t be caught dead with today. A camera phone?! What’s that?
Back then one man was miraculously able to see the enormous upheaval technology would bring to our lives today. In a book titled The Digital Economy, Don Tapscott talked of seemingly futuristic things—like networked business models, technology and privacy, and the explosive impact of new media. Today 20 years later, as we discover, his analysis was spot on. Tapscott, a leading authority on issues like innovation, media and technology, literally coined the term ‘Digital Economy’. The author of 15 books like Wikinomics, Grown Up Digital and The Naked Corporation, Tapscott is a well-known expert on the impact of technology on business and society.
On a recent visit to China, Tapscott, who recently released the 20th anniversary edition of The Digital Economy, talked to CKGSB Knowledge about what the future has in store for us and how we can cope with the disruptions caused by technology.
Q. How has your perception and understanding of the Digital Economy changed from when you first wrote about it in 1995?
A. The world back then was quite a different place. Google was five years away. Amazon and eBay came out just as I was completing the book. There was no mobile web because there was no mobility.
In terms of how things have changed, the most jarring change is mobility. Back then we barely had laptops and people used computers that were connected by a wire to a desktop, [and used] dial-ups [to connect to] the web.
I talked about promise and peril. Some of the promise has been fulfilled and nearly all of the peril that I worried about turned out to be true. On the promise side, the book talked about how the old media is different: centralized, controlled by powerful owners, and the recipients were passive. New media is not one to many, it’s one to one, many to many, highly distributed. It’s not controllable and it has this awesome neutrality. It will be what we want it to be. I was naïve when I said that because “we” is not a homogenous phenomenon: it includes people like you and me, but it also includes people with asymmetrical power… [like] Google, the government of Iran, the NSA or Goldman Sachs. In a sense, the digital revolution is encaptured by these powerful forces and the outcome is disturbing.
Lots of wonderful things have occurred: the rise of mass collaborations like Wikipedia, social networking which has brought people together and huge changes in terms of marketing.
But if you look at the main measures of well-being in society, there’s a disturbing conclusion. All around the world, at least the Western world, there’s structural unemployment, in particular youth unemployment. This growing wealth creation [has] been captured by tiny elites, and the benefits of the digital revolution are not distributed, so we have growing social inequality.
Then somehow we’ve all done a Faustian deal with the devil: I don’t remember signing any document where we said, ‘We’re going to create all this data for these big companies: they get to own and do whatever they want with it.’ The digital revolution was supposed to enable us to reinvent democracy and the first campaign by Barack Obama was very encouraging. He used social media to create a platform whereby 35,000 communities self-organized and he got to power. When his second election term came up, they shifted from social media to Big Data: from “yes, we can” to “we know you” and targeted all the swing voters. The bottom line was that young people are increasingly disengaged from the political process.
Q. How should we deal with the problems that come with the Digital Economy?
A. Each of them requires a different set of initiatives and “we” means all the pillars of society: government, civil society, corporations, individuals. Take the data issue. I was naïve [when] I said that one of the ways that you can protect your privacy is to be careful [with] release [or] data minimization. That is no longer a viable strategy because what happens in Vegas stays on YouTube. We’re leaving this trail of digital crumbs and creating a virtual you, who might know more about you than you do: you can’t remember really what you bought, what you said, or what movie you watched in your hotel room.
We’re going to need a whole new approach and [that has] to be a social one. We need some new understandings and some new laws in society about what gets done with data. We have to think about the issue of ownership and have a whole bunch of principles adopted by all parties. For example, information is [used] for the purpose for which it was collected and not for others without my permission, and if there’s some kind of monetization of my data, I get to participate in the wealth.
When we went from the Agrarian Age to the Industrial Age, all the main institutions in society came together and we figured out some things. As people move from the farm to the city, they need to be literate so we [had] public education. We figured out that there needs to be a social safety net in the city so we came up with ways of protecting people. We figured that huge monopolies needed to be controlled so we came up with anti-monopoly legislation.
I don’t think we’ve done any of that today. You’ve got all the Uber types saying, ‘This is the new paradigm, we’re disrupting the old high-demand industries. Let market forces figure it out.’ On the other hand, you’ve got the taxi industry saying, ‘You’re replacing all these good jobs with shitty jobs; [there isn’t] any kind of protection, no safety standards. We need to stick with the old laws for an old paradigm and apply them to this new paradigm.’ Both of them are wrong. We need a new social contract here [and that would be] a [sort of] combination of what both sides are saying.
Q. The Digital Economy has created radically business models, like crowdsourced work, where the company may be in the US but the work is being done all over the world. These new business models operate in a very different zone. How should they be regulated?
A. Again, you have this dichotomy of these two extremes and both are wrong. Some say, ‘Hey, we are crowdsourcing and creating products around the world. All these women are now getting income.’ [And] you have the traditional labor institutions saying, ‘This is piecework. We’re lowering the average wage. And it’s being done with no health and safety considerations. There’s no protection for any of these people on virtually every issue.’ You can’t apply the old labor legislation to this new environment. We need a new paradigm.
Consider these new business models, like the digital conglomerate: Google, Apple and Amazon. They can migrate into adjacent or non-adjacent industries and because they have this massive platform of data and this huge machine, they can move into this industry and provide way better value and way lower price and wipe out all these companies but leave behind 10% of the jobs.
Overall this [creative destruction] is good. But from a long-term point of view, there’s no scenario where jobs get created at the same pace as the ones that are being wiped out. So this is the first time in history where we have economic growth but we don’t have a commensurate growth in job creation.
I think we’ll absolutely be moving towards a four-day work week, where you get paid for five days but you work for four. If we’re creating wealth but it’s not being distributed well, then we don’t have a wealth creation problem, we have a distribution problem. We’re going to have to distribute work more and wealth more too. Do we want to create a world where 0.1% of the population owns the majority of the wealth and they wall themselves off in secure communities and never really see the rest of the population? This is a social problem and it may seem like a long way from talking about the Digital Economy, but the Digital Economy is the economy.
Q. You talk about monopolization in the digital sphere. Do you think that a digital conglomerate, like, say Google can become too powerful for its own good and the good of society?
A. By definition any company can become too powerful. Now The Economist, in examining these digital conglomerates (they don’t use that term), [concluded] that they are very different than the monopolies of the Industrial Age: they’re much more subject to competition, they don’t get synergies from various businesses they’re in, and, in fact, Larry Page recently said that if a new business they’re entering is not adjacent, that’s fine. It means less integration and less hassle thinking about how to integrate it and manage it from a corporate point of view. I don’t think there’s a case to break up Google right now, but this is something of a great concern.
If you look at the businesses that Google is in, forget about advertising, most of them are very competitive. It has probably got the best technology for autonomous vehicles, so it’s certainly going to become a dominant player but they’ve got to beat Elon Musk at Tesla and who knows, maybe one of the traditional car companies might actually start to innovate, or they could cooperate and place intellectual property above autonomous vehicles in a Commons.
Q. Is the Digital Economy changing corporate longevity?
A. It’s speeding up the metabolism of business and competition. But the old idea, which I never subscribe to, [is] that you’re one click away from losing all your customers. Is Facebook one click away from being wiped out by some other social network? No, because we’ve all got such a massive ‘investment’ in Facebook, my photos are there, everyone’s there, my entire life is recorded, so the switching costs are intense. [But they] have vulnerabilities: private behavior is the Achilles heel of Facebook. They’re caught between a rock and a hard place because the only value of Facebook’s monetization strategy is to exploit data. That means a real tension between users and their needs for privacy and Facebook and its need to turn that data into money.
Q. So back in 1995, you told us what 2015 looked like. Today what can you tell us about 2030?
A. Greater change is accelerating so fast that the digital revolution got past our capacity as individuals, institutions and a society to comprehend it. So 20 years from now it’s staggering to think what the world will be like. We’re looking at Singularity, probably not [as] Ray Kurzweil would say that we are, but new kinds of machine learning and artificial intelligence, and very smart devices capable of doing all kinds of things. The impact on the workforce is staggering. The big debate over Uber is kind of [like] whoever wins it’s a pyrrhic victory because nobody will be driving cars in 20 years. There’ll be smart, autonomous vehicles.
You’re looking at strong integration of the physical and digital world; a trillion inert objects probably in the world are smart communicating devices that are sensing everything, collecting data, never interacting. We’ll be into all kinds of 3D stuff, like watching the football game on the floor of your living room or through some kind of glasses, but [not] on a screen. We’ll have all kinds of wearable technology.
We’re in a transition today where there’s a physical world and a digital world. You’ll see a full intersection of these where everything becomes smart and everything starts to communicate. The biggest one I see is digital currencies. The underlying technology for that block chain does hold the promise of finally bringing about these very profound changes to the deep structure and architecture of our institutions. Look at corporations and governments. They’re pretty much still vertically integrated, command and control, hierarchical bureaucracies.
If you think about it, the current internet, [it is] good for collaboration… presentation of content, but it’s not really that great for business. It’s got flaws. There’s massive fraud and identity theft. And then things get slowed down by these intermediaries [who] also take a lot of the value.
Bitcoin to me is just the first half of the next generation internet, and because the underlying technology, is a bulletproof technology for knowing what is occurring and what has occurred. When you think about business, that’s a lot of what business is: who owns what, who’s buying what, how much does something cost, who paid who? And you can’t correct it because every block in the chain is linked to the block previously so you’d have to rewrite the entire history of commerce. So this could be applied to all kinds of things.
Something like half the world is not part of the economy. They don’t participate because nobody’s going to give someone a bank account if they have the equivalent of $9. If you don’t have a bank account, you can’t save, get credit, or create a business. But with digital currencies, it’s just one of dozens and dozens of opportunities to bring half the world’s population into the economy.
[This article has been reproduced with permission from CKGSB Knowledge, the online research journal of the Cheung Kong Graduate School of Business (CKGSB), China's leading independent business school. For more articles on China business strategy, please visit CKGSB Knowledge.]