post 2008 innovation economy (old version)

Innovation Economy:
Resist the hype but don¡¯t ignore the realities

Dr. Jimmy Schwarzkopf
Research Fellow
STKI
jimmy@stki.info 1

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3
All Rights Reserved @STKI Moshav Bnei Zion, Israel +972 9 74 444 74 www.stki.info

Inviting you to my office

All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info

and to my library.........


This presentation is dangerous....
It will make people think
• I do not predict because..
• Innovation
• Important books/authors
• Open source
• Cloud computing
• Neo-nomads
• METAweb
• Virtual Worlds

If I could have predicted this ??

“When the network becomes as fast as the
processor, the computer hollows out and
spreads across the network.”
– Eric Schmidt, did in 1993

So: I cannot “predict” any one in particular
but…..

Exponential Growth in logarithmic plot

15
www.KurzweilAI.net

Economic progress takes place by overlapping surges
DRIVEN BY SUCCESSIVE TECHNOLOGICAL REVOLUTIONS

Technological
progress

Time
40-60 years

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THOMAS KUHN: Paradigm Shift
• we do not advance in steady, even progress but in a
series of peaceful interludes punctuated by violent
revolutions,
• each conceptual world view is replaced by another

PARADIGM SHIFT:
1. A change in world view that
calls everything you know
into question
2. Paradigm Shift Rate is now
doubling every decade

Prof. Carlota Perez :
TECHNO-ECONOMIC PARADIGM SHIFTS


FIVE TECHNOLOGICAL REVOLUTIONS IN
230 YEARS


TWO DIFFERENT PERIODS IN EACH GREAT SURGE

Degree INSTALLATION PERIOD Turning DEPLOYMENT PERIOD
Point
of diffusion
of the

Institutional recomposition and role shift
technological
revolution
We
Are
Here
Reaping of growth
‘Creative and social benefits
destruction’ from the prevailing
Paradigm shift paradigm

big-bang Next
big-bang Time
2O - 30 years ??? 2O - 30 years

Recurring phases of each great surge


The changing face of the last 100 years


During the deployment phase: unprecedented
opportunities and new business models


THE 4 MODELS OF GROWTH ESTABLISHED
UNDER THE PREVIOUS (MASS PRODUCTION) PARADIGM

• Soviet socialism
• Fascism (National Socialism)
• Keynesian (social) democracy
• State Developmentalism (in Third World)

All compatible with the centralising and
homogenising principles
of the mass production (and mass consumption)
paradigm


Three directions of the
current paradigm shift


FEATURES OF THE CURRENT PARADIGM SHIFT


Paradigm Shift = Disruptive Technologies
“Disruptive technologies Disruptive technology.. It's
have enabled a larger trivial technology that
population of less disrupts the business
skilled or less wealthy model of the leading
people to do things in a company, and that’s what
more convenient, lower makes it so hard.”
cost setting which Andy Grove, Intel
historically could only be
done by specialists in less
convenient, higher cost
settings.”

Prof. Clayton Christensen

Technologies that have experienced
disruptive shifts:
• Film chemical based photography – digital photography
• Integrated PC manufacturing (IBM) – Modular PC manufacturing (Dell)
• Centralized copy center (Xerox) – desktop workgroup
photocopying(Canon)
• In home vacuum tube radios (RCA) – portable transistor radios (Sony)
• Department store full service retailing (JC Penney) – Big box discount
retailing (Walmart)
• Full service networked airlines (TWA, United) – Low cost point to point
airlines (Southwest)
• Drawing based animation (Disney) – Digital animation (Pixar)


Characteristics of disruptive technologies
1.Current customers of established firms are not
interested in the technology
2.Profit margins associated with the technology are
much lower than existing technology


Disruptive technologies
• Introduction of the IBM Mainframe ( 1960’s)

• Introduction of the Apple II (1978), IBM PC (1981), TCP/IP (1980’s), C/S
Architectures (1980’s), SUN workstations (1980’s), Internet (1990’s)

• Open Source (2002); Introduction of XML-based Composite Applications (2006),
Service Oriented Architectures (2005), Virtualized Infrastructures (2004),
Web2/internet 2 (2007), Cloud Computing (2008), METAweb (2008)


NEW TECHNOLOGIES COME WRAPPED IN THE OLD .
..
The first automobiles
still looked like horse carriages

One of the early automobiles 1898

…AND SO DO NEW INSTITUTIONS
including production and consumption habits and norms
Reproduction: L. De Vries. 1972

Global Innovation Index
Dr. Soumitra Dutta 6 SWITZERLAND
7 SINGAPORE
18 ISRAEL *
INSEAD Professor 19 SOUTH KOREA
8 CANADA
GLOBAL 9 NETHERLANDS 20 ICELAND
I N N O VAT I O N 10 HONG KONG 3 0 K U WA I T
INDEX 11 DENMARK
Your Text here Your Text here
which places: 12 SWEDEN
1 US 13 FINLAND
* Because of
2 GERMANY 14 UAE HUMAN CAPITAL
3 UK 15 BELGIUM
4 JAPAN 16 LUXEMBOURG
5 FRANCE 17 AUSTRALIA

All Rights Reserved @STKI Moshav Bnei Zion, Israel +972 9 74 444 74 www.stki.info 36

change is the
process by which
the future invades
our lives

Alvin Toffler


Resilience: Not only the
ability to recover from a
change or shock.

Resilience: Not
only the capacity of
people to cope with
change, stress or
All Rights Reserved 2008@STKI Moshav Bnei
catastrophe. Zion, Israel +972 9 790 7000 www.stki.info
39

RESILIENCE: The rate at which any system
IT RESILIANCE:
returns to a single steady state following a
system perturbation.
The ability to provide an acceptable
level of service in the face of faults
and challenges to normal operation.

All Rights Reserved 2008@STKI Moshav Bnei
Zion, Israel +972 9 790 7000 www.stki.info 40

Stress / resilience in the genes ?
4Stress/ resilience:
• Brain releases serotonin
• Kills off neurons if not metabolized
4MAOA gene with 5HTT:
• Handles better stress and resilience
• Produces molecules better at synthesizing serotonin

41

History of Innovation


The future is really only an
innovation problem
How do we find the future we prefer?

Innovation is the ability to move from
the existing to the preferred


Innovation versus Creativity

Vision
Desired
Innovation Future
is the engine
that drives
transformation..

Present
Default Future


TIMING in INNOVATION


“I’m an inventor.
I became interested
in long term trends
because an
invention has to
Ray Kurzweil
make sense in the
world in which it is
finished, not the
world in which it is
started.”
-

Innovation IS strategy: from BUILD to CREATE

Red Ocean Strategy Blue Ocean Strategy
Compete in existing market space. Create uncontested market space.

Beat the competition. Make the competition irrelevant.

The New Economic Age
Exploit existing demand. Create and capture new demand.

Make the value-cost trade-off. Break the value-cost trade-off.

Align the whole system of a firm’s Align the whole system of a firm’s
activities with its strategic choice of activities in pursuit of
differentiation or low cost. differentiation and low cost.


Innovation:
which one?

Water drum

Mini disk

METAweb
pushes need for “new CIO”

Innovation

METAweb

Time

THE POWER OF BEING CONNECTED
CONSUMER 2.0
Co-Creators

Control Cash

The birth of
Generation C
Communicate Connected
Creativity

Content Creative Class

Conversation
Community
Channel

Consumer 2.0 51

Some background



Books of the 1980-90s
-” No institution can possibly survive if it needs
geniuses or supermen to manage it.
It must be organized in such a way as to be
able to get along under a leadership composed
of average human beings”-
“It is the means by which [organizations] create value-
producing resources or endows existing resources
with enhanced potential for creating value”

“The customer rarely buys what the
company
thinks it is selling him”

New era


BOOK OF THE 1990’s
• Introduced the business world
to rethinking operations.
• Demonstrated how process
redesign can yield
breakthroughs in performance Plus 10,000 rebuttals

• Put the word quot;reengineeringquot; And 20+ books

into the English language.


BOOK OF 2003
copied: “The Myth of Real Time Information”, HBR 1966

Plus 2000+ rebuttals
And 5 books


Book of 2005
• Thomas Friedman
– 3 billion people (consumers & producers)
entered the world economies
• Eastern Europe (ie: Rumania)
• Asia (ie: China, India)

– Now we have a “new” economy:
• Interconnected (fiber everywhere)
• Standardized (Open Source)
• Supply Chains Management
• Out-sourcing, In-sourcing, Off-shoring
• Info sourcing

Book of 2008
• Stephen Baker introduces us to the
mathematical wizards who are digging
through our data to decode us as
patients, shoppers, voters, potential
terrorists—even lovers.
• translate the complexity of highly
intelligent knowledge workers into the
same types of equations and algorithms
that are used to fine-tune shipping, sales
and other BI applications.

Math based word cloud


Moving from PRODUCT to a SERVICE ?
• Represents a change in BUSINESS MODEL ?

• Represents a “disruptive” change ?

YES
CLOUD COMPUTING and SOA are basically new
“disruptive” ways of delivering IT


Wisdom of Clouds : quot;cloud computingquot;
4What's revolutionary is not cloud computing itself
but how the pieces have come together to
make doing business in the cloud seem increasingly
like an economic inevitability

4Cloud Your Text here is a simple concept:
computing Your Text here
• Software and services are delivered over the Web and
through a browser.
• No servers or client software to install.
• Available anytime, anywhere, from any device
connecting to the Internet


What is Cloud Computing?
1. data and services reside in massively scalable data
centers
2. accessed from any connected devices over the
internet.

Web 2.0-
enabled PCs, Businesses,
4+ billion phones by 2010
TVs, etc. from startups
All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info to enterprises

Cloud Computing Architecture
Apache

Virtual Virtual Virtual Virtual
Machine Machine Machine Machine

Monitoring Agent
Open Source Linux with Xen

Data Center – 64 bit X86 Virtualized Infrastructure based on
Open Source Linux & Xen
Monitoring Provisioning Baremetal & Xen VM

Monitoring Provisioning Application Server
DBMS
Manager

Management Stack
All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9
790 7000 www.stki.info

Cloud Computing Modularity

Desktop as a service

Software as a service
(standard applications)
Platform as a service
(custom applications)
Infrastructure as a service
(compute, storage, network)

Computing and Communication Technologies
Evolution: 1960-2010!

Cloud
Computing

Centralised Decentralised

Control

Which road should we take ?
Alice came to a fork in the road.
“Which road do I take?” she asked.
“Where do you want to go?”
responded the Cheshire cat.
“I don’t know” Alice answered.
“Then” said the cat,
“it doesn’t matter”. Lewis Carroll, Alice in Wonderland

All Rights Reserved @STKI Moshav Bnei Zion, Israel +972 9 74 444 74 www.stki.info 68

Nomad worker:
Maslow’s hierarchy of needs


Access Proliferation

• Video games • Radio • Satellite Radio
• Email • DVD • TiVo (Starhub PVR)
• XBox LIVE • Ring Tones • Video On-Demand
• Websites • TV • Newspapers
• IM • Blogs • Podcasting
• Search • Magazines • Cell Phone
Source: Darwin Day Conference, Google

and the effect on IT…….


The Peopleware Ecosystem
Identity Management
WCM
Composite App. Wireless Security
Framework
SSO Application Servers

Expertise Location EAI
& Mgmt.

Collaboration Web Services
Peopleware
BAM BPM
Directory E-Forms/Workflow

E-Learning
Search
Development Tools Business Intelligence

DM Knowledge Mgmt.

A process of mutual shaping
in a constantly changing context

TECHNOLOGY SOCIETY


Neo-nomads : new Bedouins flourishing in
the coffeehouses of central Israel
• A new breed of worker, fueled by
caffeine and using the tools of
modern technology
• They are typically armed with
laptops and cell phones, paying for
their office space and Internet
access by buying coffee and muffins
• This neo-nomads see themselves
changing the nature of the
workplace, if not the world at large.

Nomad Worker (2008) vs. Paris Existentialist (1950s)
4Tel-Aviv geek with earphones and
laptop in Arcaffe (2008)
• simultaneously cramming for
exams, napping, instant-
messaging, researching, reading
and discussing, listening to music,
browsing and e-mailing
4Paris existentialist watching the
world go by at the café Les Deux
Magots (1950s)
• puffing a Gitane, napping and
jotting down notes about being
and nothingness


OLDENBURG: how infrastructure…
4Time is primarily spent in :
• First (home) place: isolated
• Second (work) place: isolated
• Third places : neutral public space to
connect and establish bonds.
4Big Changes now:
• Between 1990-2006: people went to
anonymous locations such as malls
• Starting in 2007: good third place makes
admission free or cheap (the price of a
cup of coffee), offers comforts, is within
walking distance and draws a group of
regulars.


Infrastructures influence work
• infrastructure makes it possible
for people to work where they
want, when they want, how they
want
• SIX abilities needed:
1. Design – Beauty and uniqueness
2. Story – More than mere facts
3. Symphony – Seeing the big picture
4. Empathy – Understanding others
5. Play - Enjoyment
6. Meaning – Fulfillment


2007: the year of my discovery
• “SACRED ORDER OF THE EXTERNAL MIND”
I could outsource mental tasks
Life is a math problem and I have a calculator

• MAGIC OF THE INFORMATION AGE
Not that it allows us to know more
It really allows us to know less


An example:
my romantic attachment to my “GPS”

GPS

• EXTERNALIZE GEOGRAPHIC INFORMATION FROM MY
BRAIN
• OUTSOURCE MAP READING SKILLS
• ALLOW CALCULATION OF DRIVE TIME

Pinpoints a supermarket in MEXICO ?
my son is calling from there


I have outsourced part of my life
to external cognitive servants:
• No longer need a • Musical taste:
memory – ITunes
– Google
– Yahoo • Books and others:
– Wikipedia – Amazon

• Personal Information • Social Capital
– Smartphone tells me – LinkedIn
about birthdays, phones,
addresses – Xing
– Facebook


Jimmy’s Touch Points
Blog Sites Music Sites
Reads his friend’s
postings Reads up on
new cd
releases

Movie Sites Downloads
Songs
Buys tickets
online

Sports Sites
Gets the latest
updates on
favorite teams
Gaming Sites
Looks for
information Checks scores
about Nascar
games Google.com
Searches for
“what’s cool”

Beware of errors: internet full of them


“A Pattern Language”, Christopher Alexander
4Each pattern describes a problem that
occurs over and over again in our
environment
4Then describes the core of the solution
to that problem, in such a way that
you canhere this solution a million Your Text here
Your Text use

times over
Without ever doing it the
same way twice


And with access to these tools I can answer
ANY question in less then 30 minutes


Banks YOUtube Business Average person:
Insurance Slideshare Simulations 10-15 intimate
Travel Blogs Training 150 social
“Amazon” Newspapers Second Life 500-1500 weak
“e-bay” WIKIPEDIA Sales links

Transaction Sites Multimedia Sites Game Sites Social Sites

Websites can
no longer be
islands
Users want
bridges
elsewhere

A powerful global conversation has begun
• Through the Internet, people are discovering and
inventing new ways to share relevant knowledge
with blinding speed.
• Networked markets are beginning to self-organize
faster than the companies that have traditionally
served them.
• As a direct result and thanks to the web, markets
are becoming better informed, smarter, and more
demanding of qualities missing from most business
organizations.
• markets are getting smarter and getting smarter
faster than most companies


Companies wake up !!!!!!!
4Customers are:
• writing about products on blogs JOSH BERNOFF CHARLENE LI

• recutting commercials on YouTube
• defining companies on Wikipedia
• ganging up in social networking sites
like Text here
Your Facebook Your Text here

4MOST COMPANIES SEE IT AS A THREAT


Social Technographics™
Josh Bernoff, co-author of Groundswell


METAweb

METAweb phenomenon
(fi-nom-uh-non)
-noun
1. a rare or significant fact or event in the
web that happened in 2007
2. something that is impressive or
extraordinary that happened in 2007


METAweb


Google versus ???
4Humanity emits the data (words, pictures, clicks,
and searches are the raw material)
4Handful of cloud-wielding Internet giants like
Google, Yahoo! or Amazon.com transform the info
into insights, services, and, ultimately, revenue.


http://labs.google.com/


Cloud Computing

A. IBM Introduces 'Blue Cloud' Computing CIO Today - Nov 15 2007
B. IBM, EU Launch RESERVOIR Research Initiative for Cloud Computing
IT News Online - Feb 7 2008
C. Google and Salesforce.com in cloud computing deal
Siliconrepublic.com - Apr 14 2008


Why does it bother me ?


Google 10 years of innovation
Core Search Ads Monetization Communications Collaboration ?

1995 1998 2000 2003 2004 2005 2007 ?


Internet 2 is not Web 2


WEB 2 are WEB Technologies


Internet2: 2.4 Gbps plumbing

109

Leveraging the Web for
Measureable Business Results

• Gone are the days when
merely having an online
presence was a
business breakthrough.
• Today's companies
MUST leverage the
power of the Web if
they're to gain and
maintain a competitive
advantage.

In 2010: all new WEB experience
4Soon each website will become a 3 dimensional room
that can be experienced alone or with friends



Create your own virtual space
Chat and interact with your friends
in rooms you design

Express yourself
Customize your avatar and stream
personal photos and video

Add your room to your site
Invite your friends to chat and help
decorate

Ramona:
first live virtual performing recording
artist.


Second Life is the
biggest virtual world
• 40,000 concurrency (at any time) Million Square Meters of
• 450,000 active users (last 7 days) Second Life Land
• 1.4 m active users (last 2 months)
• 10.6 m total accounts
• 2 m assets created per day
• 35 TB of user-created data
• 800,000 unique items sold or traded
per month
• 500 events per day
• 15 m concurrent scripts
Total User
• 10 Gbps peak bandwidth Hours (millions)

Source: Linden Lab

Source: http://secondlife.com/whatis/economy-graphs
116

Currency: Linden$
• LindeX exchange operated by US$ Spent by Users
Linden Lab (in Millions)

– Buy: USD $.30 transaction fee
– Sell: 3.5% transaction fee
• Monetary policy

270 L$ =$1 USD
US $ Exchanged on
Lindex (in Millions)

Economy

• Reuters
• Banking and credit
• Stock markets
– SL Capital Exchange (US, 20 listings)
– World Stock Exchange (Australia, 15 listings)
– VSTEX (Italy, 7 listings)
– Ancapex (US, 3 listings)

Advisory/Analyst firms

We hope that during 2009 STKI will
be present there and will have it’s
first SUMMIT
H&R Block Island

KAWG&F (Baltimore MD CPA firm),
CPA Island BDO Stoy Accenture
Hayward Island

Business

IBM

Preen Motorati Preen Principal:
Cisco SpokesAvatar: Aimee Weber
caLLie cLine

Dr. Dobbs Life 2.0 Conference

Best Buy’s H&R Block 120
Geek Squad

Academia, museums, non-profits

Princeton Art Gallery Science Friday

International Computer History American Cancer
121
Spaceflight Museum Museum Society Relay for
Life

Government, politics and collective action

US Congress – hot topic
US Congress legislation

European Campaign HQs Davos protest
Community

METAweb REVOLUTION
4The real, long-term change is just beginning to be felt,
and anyone thinking about our economic future should
consider this:
• access to information is a democratizing force
• makes it inexpensive and easy to collaborate and share
information.
• even the smallest companies can now have as big a
presence online as a multinational corporation
The revolution may have started in a garage in California
but it has already crossed every border
moving as freely
around the globe as a cloud

post 2008 innovation economy (old version)

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