SOPHISTICATED FINANCE

Four Major Trends in the Current Fourth Industrial Revolution

 

This is my recent article on Medium about trends in the Fourth Industrial Revolution.

 

Fall 2018 Courses

 

This Fall I am teaching two courses at FIU in the Honors College:

1. The Fourth Industrial Revolution    This course is for two semesters. The course starts with an introduction to industrial revolutions and the writings of Carlota Perez. I used to start with Thomas Kuhn, but that was heavy going for undergraduates. Then we read Complexity: A Guided Tour by Melanie Mitchell, a researcher at Santa Fe Institute. Stephen Hawking said that complexity will be the science of the 21st century. We finish the semester reading The Nature of Technology by W. Brian Arthur. One of my students, an engineering major, said that every engineer should read this book the first week of engineering school. The book reading is supplemented by several current articles, which are included in this first-semester reading list,  Download 4IR Reading List F2018.  After setting the stage with Perez' writings, the course moves into an exploration of the technologies of the 4IR--artificial intelligence (AI), Blockchain, gaming,  bio-sensors--to name a few. Much to my surprise, last year the students admitted that they did not know much about the technologies. This year we go deeper into the technologies. 2nd semester we explore the social, economic, political and environmental issues of the 4IR, which the students need to understand to fully function as citizens. Income inequality and the environment are two recurring themes, as I see these topics as the two critical issues of the 21st century. Course project will be to propose what the government will be in 2050. Students work in teams to perfect their collaboration skills.
2. Thinking, Design and Impossible Problems   This course is for two semesters. For several years I have been teaching a course on thinking disguised as an entrepreneurship course. What I realized is that better thinkers produce better entrepreneurs. This year I am just unabashedly teaching a course on thinking and the real objective is to help the students think like a genius. The readings, the authors, everything except the professor, is about the mental frameworks of genius level people. In part, the course was inspired by the first reading in the course, The Evangelist of Molecular Biology. This article is about James Watson, who won a Noble Prize for his work on DNA, and how he almost became an ornithologist. One day he realized that he would make no real contribution to humanity in ornithology, looked for a new field of study, and found molecular biology and genetics. From this article, I realized that high potential students need to be immersed in the thinking and writings of geniuses in order to better understand their alternatives. First book in the class is Melanie Mitchell's book on complexity (described above). One of the best frameworks for thinking about problems is to model them as a complex system. The second book is Ray Dalio's Principles: Life and Work. Dalio is a legendary hedge fund manager and a well-known advocate for the use of mental frameworks to address problems. Similar thinking and approach to another legend--Charlie Munger. The first-semester reading list  Download TDIP READING LIST F2018 also includes several articles. Many of the articles focus on inter-disciplinary approaches to problems and new fields where modeling is being used for the first time, such as mathematics, computer science and neuroscience. Each weekly class the students present their analysis of a different impossible problem and the course project will probably be to explain why art and science will converge in the 21st century. Students can work on all the problems in teams or individually. 

 

Image credit: Tomorrow Today Global

My Latest Writing on Entrepreneurship and Complexity

For the last five years most of my thinking and teaching has revolved around three major areas:

1. Entrepreneurship
2. Creativity and learning
3. Complexity science

Today on Medium I published an essay on these subjects and how they explain many of the large market opportunities that consistently have repeated throughout history:

The Foundation of Entrepreneurship: Large Market Opportunities that have Repeated for 40,000 Years

If anyone thinks the essay is suitable to develop as a book, let me know by email.

Information, Capital and Blockchain

If you study complexity science you soon realize that reality is energy and information. If you study physics, one school of thinkers believes reality is binary [0,1] otherwise known as bits of information. This may not come as a surprise if we study Claude Shannon’s seminal work in information theory, which sparked the Third Industrial Revolution and the digital era. As we look at the Forth Industrial Revolution we see that information continues to be important in areas such as AI, IOT and robotics. So maybe we can conclude this information concept is important, even if we cannot tell what happened to Schrodinger’s cat or that tree in the forest.

Last week a friend was talking about healthcare and he asked me who had the most money in the healthcare system? The answer,  the insurers. Who has the most information in healthcare? The answer, the insurers. Historically, those who controlled the greatest amount of information were able to amass the greatest amount of capital. If you think about the enormous valuations of Google, FB and Baidu, one realizes that their platforms have chokehold on information from which they extract enormous value.

If you study the Blockchain and its distributed network of highly secure information, one realizes that this infrastructure eliminates the opportunity for information choke points and the related value capture. Now you know why the non-speculators are excited about Blockchain. The economics of value creation through information will remain intact but the value will be shared widely and not concentrated the way it is today.

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My Concern about How AI will Change Research and Thinking

Recently there have been some excellent articles and talks on AI, including:

1. The Physicist Who Sees Crime Networks 
2. Science has outgrown the human mind and its limited capacities
3. Mobile Is Eating the World, 2016 (recommended video)

Each of these articles deals with the advances in AI with respect to data analysis. The articles herald the amazing conclusions we have only recently been able to draw from the data. The second article goes on to talk about how the way humans think is changing to better use the new AI tools. The third article talks about how AI tools have totally changed in the last ten years, moving away from rules toward something that approximates human "learning". I could have picked 10-20 other articles in the last month that herald the same trends as these three articles. 

The depressing conclusion I draw is that science and social science is now going to be almost entirely shaped by the available data sets and the AI tools available to researchers. Also, probably for the first time in history private companies now have greater resources to do AI research than universities and more importantly are using the resources for this research. However, this corporate research is more likely to find the next behavioral insight than a breakthrough such as chaos theory or quantum mechanics. Furthermore, the best academics in Physics, math and computer science are being lured away by the corporates to do AI research. The outlook for breakthrough research that changes the future of mankind looks much less likely.

All of this would be distressing if not for a bigger concern. As we continue to advance science we are coming to realize that almost all human behavior can be explained by biology and physics. A representative article showing this trend is Swirling Bacteria Linked to the Physics of Phase Transitions. (For some unknown reason I love these articles where the apparently chaotic is explained.) I call this the "think like an ant theory". To understand a problem, think like an ant.

A popular emerging field is the combination of biology and business, where complexity science brings a cohesiveness to two such disparate fields. From this increasing understanding and reliance on biology and complexity science, one comes to realize that these simple models and methods can probably explain nearly everything. For example, to understand cities, first understand hunter-gatherer tribes. To understand entrepreneurship, first understand exploration and exploitation (what we now call Lean Startup), the fundamental behaviors of every living thing. This trend toward simplicity, however, is not supported by the popularity of AI and data sets.

If we look back in human history, until the twentieth century research was not heavily reliant on data collection and data sets. Therefore, most of the great thinking in human history was done by methods that were far simpler than AI. I do not think we need to return to the 16th or 17th century methods at the expense of AI, but I do think we need to realize that AI is not a panacea and traditional thinking still has much to contribute.

One could probably argue that the problem with research since the last century has been an increasing effort for it to look data-based and scientific. AI will only make such approaches easier and wider ranging. The original style of thinking of Aristotle, Descartes and Hayek should not be forgotten or held in disdain. 

Brain Pickings today writing about Bertrand Russell:

"But beneath such a surface impression is enormous depth of insight and a timeless, increasingly timely clarion call for nuance in distinguishing between the sort of knowledge driven by a greed for power and the higher-order wisdom that makes and keeps us human."

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Art--A Large Market Opportunity

It has been quite awhile since I wrote about a new market opportunity. I tend to write about opportunities that I think are underappreciated.  Schopenhauer said that art makes our emotions tangible (or real). This unique mission is what, in part, makes the arts precious. Since the earliest days of computing people have been trying to bring this technology to art. However, typically they make the same mistake we see in edtech. If we use technology to duplicate an analog experience, do not expect a different outcome or much user uptake. Music streaming might be the one noticeable exception, but I would argue that streaming makes listening so much more covenient that it is not really an exception. The power of art is that it changes our perception of reality. Therefore where technology should focus Is in facilitating the understanding of perception. Rather than focusing on the art object--the music, the artwork, etc.--we should be facilitating how the participant interacts with the artist. Fred Wilson's post today, The Online Club, talks about how music performers can get immediate feedback from thousands of online listeners. Certain book sites allow readers to question and converse with authors and a new Miami company, Kurator, will allow purchasers to talk with the artist before they buy one of their works. All of these examples I think highlight a new focus and opportunity for how to change the user's experience with art.  Bloomberg reports that annual art sales alone total $54 billion, before we consider music, literature and film. Ever wonder why the Kardashians have millions of Twitter followers. All of the arts are important to us and we want more personal relationships with the artists. That is the big opportunity where I think people should focus.

Evernote and Google Drive Collaborate

I use Gmail as the backbone of everything digital that I do. I use the app as well as the email service. If an important attachment comes in an email that I might need in a meeting, I store it in Google Drive because I only carry a phone and almost never a laptop or tablet. If I carried a laptop I would store attachments in Dropbox, which has been my principal storage/backup since the day Dropbox came out of Beta. Anything really important is stored in Dropbox. It is much easier to store a Gmail attachment in Google Drive than Dropbox, although it can be done. I take all my notes in Evernote, which is probably the best product I use.

I have been a particularly confirmed user of Dropbox and Evernote since the day Google cancelled Google Reader, their RSS reader. I read about 200 blogs more or less ever day and moving that "library" after Google Reader died was important to me and not trivial. From that day on I have no archive of my information with Google, Apple, Microsoft or another mega-app provider.[I don't consider the Gmail archive of emails to be very important.] I prefer my critical apps to be from single app companies, companies where the sole purpose of the company is a single app. 

This strategy may now be in question. Google and Evernote have announced an agreement whereby Evernote can access Google Drive files. Is Google the camel putting its nose under the tent of Evernote. Is Evernote independence now in  question? Will Microsoft swallow Dropbox next? As sad as it would be to lose Evernote to Google, it would be a tragedy for Dropbox to lose its independence. In my mind Dropbox is the app that made the mobile device era when it permitted the most simple way to synch documents across multiple devices.

Some Random Observations

A few things I find interesting.

1. Overheard on the street, "I buy my eyeglass frames at Goodwill and then have the lenses custom made". Looks like a great example of functional fixedness overcome and re-using materials.
2. It looks like more and more people are combining communities with marketplaces as a way to address a social problem in an economically self-sustaining way. Etsy maybe comes close to this idea, but I expect the community to drive the traffic to the marketplace and not the suppliers.
3. I find it interesting that there is a significant percentage of the viewers of my TEDx talk on poverty who watch it multiple times. Not sure what it means but it intrigues me.
4. U.S. is in the midst of a food craze. People have to stop talking to me about their food ideas. Nobody yet appears to know how to get an incubator off the ground.
5. The best young entrepreneurs I see in Miami are women. Not sure we need to focus on helping women start companies, but I understand that "woman entrepreneurship" is a way to differentiate an incubator or accelerator.

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My TEDx Talk on Poverty.

My TEDx talk on overcoming poverty.  The solution to social problems is to empower the individuals.

 

 

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The future of VR

This article on cooperation in VR (virtual reality) between Samsung and Six Flags, the amusement park operators, prompted today's post.

Technically I think the cooperation is in augmented reality because the technology supplements the actual ride experience. The user wears a VR headset during the ride so it is more than traditional VR. I digress.

The point I took away from the article is why do I need to go to a theme park. I can duplicate the experience of the park rides with just a headset. Maybe I would need a chair hooked up to the VR to duplicate all the physical sensations, but I think the combination of headset and chair would be compelling.

VR today suffers from the same problem personal computers had in the early days--no use case. It was not until spreadsheets came along that personal computers took off. We need to find Excel for VR or else it will stay a niche technology. Spreadsheets worked because they served a very basic need-mathematical computation. What very basic need can VR serve (after which it can proliferate into hundreds of other use cases)? My guess would be something related to music. (Almost every Apple product launched on the back of an innovation related to music.) Perhaps allowing the users to share the perspective from the band's point of view during a concert would be compelling. Maybe sell that experience on a subscription basis for a well known band's world tour.

Self-organizing Systems

For some time I have been looking for a phrase that describes what I think is the future direction of software. Frog Design provided the phrase in this story, "We Are the Builders of Tech Revolutions. Why Are They Still a Surprise?" Frog predicts that software will be "self-organizing" by ~2030. Whether Frog and I agree on the meaning of self-organizing is not important.

I define self-organizing to mean that the software has sufficient data about the user combined with well developed artificial intelligence sufficient to predict an experience equal or better than the user could do. The experience might be a purchase such as a vacation trip or a list of recommended books to read or know who of your friends to send an article to. In the work environment your archive of information would dynamically connect with co-workers around the world who show the same degree of seriousness about a subject and create meta tags (or whatever is in use then) so that similar articles are more easily available to you regardless of how one person tagged them.

The information capture about you is already there. Note the Facebook ads you keep getting until well after you buy the new bag you researched at Michael Kors. The AI software probably needs a bit more time to reach the standard of designing a vacation as well as you would do it, but another ten years should be sufficient. A lot of data is being run through that AI software in ten years and the software keeps learning.

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WriteLab--Very Nice Editor App

A friend sent me a link to WriteLab, an AI-based prose editor. The company was founded in 2013 and an early investor was Mitch Kapor's Kapor Capital. (Kapor founded Lotus, a predecessor to Excel.)

Given the amount of writing I do, I had to sign up for a free trial. I took it for a test drive using a chapter from my next book. The chapter deals with how complexity theory applies to opportunity identification in entrepreneurship. Not a simple subject so I thought it would be a real test for the AI. A sample screen of the app, my prose and the comments is below.

 

I think the comments are generally excellent with very few computer style mistakes. The software is targeting a very high standard of writing, which I [modestly] define as better editing than I could do myself. I cannot figure out why editing comments  are classified into seven categories, but I would guess it has something to do with how the software learns. 

The setup is clunky. Just signup, ignore all the tutorials and just upload a document. It has MS Word type logic that we all understand. It will take a few minutes to get comfortable but when you realize that clicking on a comment takes you to that section of the prose, you have basically mastered the software. I am not yet confident that format is maintained.

One funny note--a computer style mistake. The computer commented on a Howard Gardner quote in my prose. Howard Gardner is a very famous education professor at Harvard. The computer did not know not to edit a quote (the edits would have improved Gardner's writing).

If you do serious writing and do not pay for editing, WriteLab is definitely helpful. Recommended for any considerate students :-)

WriteLab is further evidence that last week's story, "AI is the Paradigm Shift", is going to turn out to be correct.

Note: I rejected two changes proposed by WriteLab for this post but accepted 8 other comments.

 

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Facebook at Work

Business Insider reports that Royal Bank of Scotland is testing Facebook at Work as an email alternative. RBS cites the better functionality of the experimental Facebook at Work as the reason for the choice. What the Bank really mean is that we have learned to communicate in a new way, Facebook, and we now prefer that way. Interesting that consumer-focused Facebook realized their attractiveness as a business product....or maybe they wanted to get ahead of the other messaging powerhouses.

This quote from Inside Intercom may explain it.

"Given so much of our work is based on the back and forth exchange of ideas, it’s not surprising designers are imagining a new generation of messaging products, with dialogue at their center. Conversational UIs are breaking out of messaging apps and into products we use every day.

The cause of this shift is simple: human nature.

We’re innately tuned to converse with others. It’s how we share knowledge, how we organise ourselves, and how we share emotions. Language has been part of our makeup for hundreds of thousands of years. So of course we message all day long in bursts and binges, with family, friends, and colleagues. Messaging has become a layer through which daily lives are conducted."

I have been using Slack for about a month. I am not impressed. WhatsApp did not impress me either. I look forward to seeing FB at Work.

 

Learn from a Great Designer

A few years ago I had the pleasure to work with Yves Behar at fuseproject. He was the designer for the One Laptop per Child laptop and then the tablet (the project I lead). Yves has many talents, as would be expected from a world class designer, but what I always noticed was his unwavering focus on understanding the customer.

This story from the fuseproject blog, "On Crafting Wearability", makes the customer focus clear. I inserted the bold to show the insights about the customer in the reprint of the story below.

"Wearables represent an immensely excited and daunting design challenge. There are very few things, let alone electronic devices, that we wear on our bodies 24/7. In fact, we entered wearables because we felt that, in addition to our technological assets, the key to true success would be creating something inspired and unique -- something you would love to wear. Delivering on these principles is not easy. It takes time, commitment, invention; these combined with great engineering and never tried before manufacturing methods has led to a new collection of UP2 and UP3 offerings.

UP2, already the slimmest and lightest wearable on the market, has been reimagined with a new style strap, making it look even smaller on the wrist. The rope-like TPSIV rubber band with a polished metal hook is a new style that is extraordinarily comfortable and graceful. The open strap gives more breathability on the wrist, while looking complementary next to a watch or jewelry."

Would you have researched wearables well enough to draw the insights bolded above? I particularly like the insight about the wearable looking good with a watch or bracelet.

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Amazon Buttons, A New Definition of Customer Experience

This was one of  Thursday's tweets.

Fast Company describes the buttons:

"The adhesive one-touch buttons instantly order predetermined refills of detergent, paper towels, toilet paper, garbage bags, and other household items. They cost $5 apiece and cannot be customized by brand: Each one is tied specifically to names like Gatorade, Bounty, Tide, and even Kraft Macaroni and Cheese. Amazon currently offers 18 such buttons, though there are a multitude of product options within the individual brands."

My thoughts on the buttons are as follows:

1. This is a whole new way to lock in a customer. I would be concerned if I was Walmart;
2. In a short time the button data will be able to predict when the consumer "needs" to re-order, which many will find attractive
3. When will Amazon start asking if you want re-order notifications?

I think these buttons represent a new dimension in considering how to develop a customer experience.

We Need better Moderators

I have stopped doing panel discussions, but I am happy to be a moderator if the panelists are interesting. In the last two weeks I have watched several panels on very interesting subjects with great panelists that completely flopped. They all flopped because of the moderators. If you are moderating a panel my advice would include:

1. Research the subject of the panel well and invest equal time to understand the careers and thinking of the panelists
2. Refrain from introducing your own opinions. Nobody comes for the moderator
3. Do not under any circumstances argue with the panelists
4. If you do not have an insightful followup question, move on to the next planned question

Someone needs to provide a free training program for moderators.

Creating Value in Mobile Apps

The key to creating a great product and company is to create value for the customer. Value is that unique combination of emotional and economic benefits that motivate the customer to purchase. In the best situation the product enables the customer to create their own additional value. In an even better situation, value for the customer is derived from the value/content that the customers create. An example may help.

1. Typical Platform Company--You Tube, Instagram, Pinterest--value for the customer
2. Customer created use cases--ads on your You Tube videos, selling your products through Pinterest or Instagram--platform tends to go viral at this point
3. Curate customer data to create more value--Google capturing multiple customer locations to determine traffic conditions, Instagram providing current events collections of user photos

Options 2 and 3 allow for multiple opportunities to create value beyond just the code base from the platform.

If we examine Twitter, it is not clear there are use cases developed by the users or by curating the user content. So it is not required to be successful, but I think the more value creation the more attractive.

On a related theme, the proprietary code should be for the principal value creation for the customer. The remaining code in the stack can come from the open source community. This idea is explained very well here.

Companies with No Humans

This quote in a story in Fast Company caught my attention:

"...a system in which a program can be written to find an answer—or to execute a smart contract that can buy something, sell something, or do something. In aggregate, a group of smart contracts could run what is known in Ethereum-speak as a "decentralized autonomous organization" (DAO) or a "distributed autonomous corporation" (DAC)—in other words, a corporation distilled to its most basic tasks, and operated by little more than code and the logic of if this, then that." (emphasis added) Companies will have a single asset, a code base using AI, that will enter into transactions with independent service provides to create, deliver and capture value.

Perhaps this novel idea caught my attention because I had spent the weekend reading about datafication, which is explained in a study by Ericsson "The Impact of Datafication on Strategic Landscapes". Digitalisation is the evolution of IT starting in 1950 which brought us apps, mobile devices and a focus on IT for productivity improvement. Datafication is the new approach to IT which recognizes the changes coming in IT from the large number of physical objects capturing or generating data. The differences in digitisation and datafication (from the Ericsson study) are summarized below.

 

Now, as every aspiring entrepreneur knows, one must understand the customer and their problem to successfully start a new business concept. The question one should be considering is whether datafication provides sufficient information for the code based AI company to successfully identify a large need and develop a solution. Ericsson believes the answer is yes and the data source will probably be your cell phone, which captures and generates data on your entire life. When a company with no humans is analyzing data about you, it brings privacy issues to a whole new level.

Maybe the solution to the problem of the morality of capitalism is to replace the human managed companies with "no humans" companies. Might be more socially aware :) 

Instead of robot challenges every weekend, maybe we should have challenges for best code to autonomously operate a company. 

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Funny Twitter Marketing

I received this email from Twitter promoting people to follow.

I would like to thank Twitter for the marketing support, but I already follow Robert Hacker. 

 

Understanding Digital Business Models

BCG.Perspectives has a very interesting new article, "Navigating a World of Digital Disruption". The article focuses on how the BCG clients (F500) can be disrupted and how they can position strategically and tactically to improve their performance. However, I found the more valuable parts to the article to be:

1. A new perspective on why Amazon has succeeded
2. A new way to look at the business model for digital companies 

I really liked the graphic below. One point to note, I think you can only strategically focus on one "architecture" at a time for an line of business. For example Amazon uses communities to do book reviews, but the Amazon strategy is a platform strategy for its original business. I THINK A LOT OF STARTUPS TRY TO COMBINE PLATFORM AND COMMUNITY AND THAT IS WHY THEY DO NOT GET FUNDED. YOU CAN ONLY BE ONE.

The article also has an interesting proposal for how NGOs and multi-laterals could re-organize agriculture to be more sustainable and effective through big data.

This is an article worth reading slowly and not speed reading. Thanks to @John_Menenzes for the heads up.

 

 

 

 

 

@john_menenzes 

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