Early Indications - December 2006
How'd We Do?
In January of this year, we published eight predictions. At this point, the score is six hits, an incomplete, and a slight miss. Overall, it was a pretty good year for technology and innovation, with a variety of new wireless technologies getting closer to market, a breakout year for web video, and an ambitious set of web services from Amazon (including everything from artificial intelligence to warehouse shelf space).
On the mis-step front, the litany of privacy breaches became longer and louder, with a stolen laptop costing the U.S. Veteran's Administration a projected $160 million dollars had it not been found. In the midst of absorbing losses in the hundreds of millions of dollars because of defective batteries, Sony launched an expensive, powerful gaming platform that it couldn't supply in holiday quantities. The "netroot" bloggers made a lot of noise but in the end did not get their U.S. Senate candidate elected.
- The second half of the year will be stronger than the first half in the PC sector
Even though Microsoft's Vista operating system has yet to generate any PC sales, because consumers can't yet buy it and enterprises will have to certify their existing applications on the new platform, this prediction did in fact come to pass: at HP, the Personal Systems group saw revenues for the three months ending October 31 rise 13% over the quarter ending July 31. At Dell, only preliminary numbers for the quarter ending November 3 have been reported, so it's difficult to say with certainty what's going on.
- "Services" will become the corporate IT buzzword outside IT
SAP recently announced that its core positioning will focus on what it calls Enterprise SOA or ESA, with half of R&D spending committed to creating up to 30,000 SOA-driven business processes. Accenture is spending an announced$450 million on SOA, HP $500 million, and IBM a total of $1 billion on SOA over the coming years. Oracle, BEA, Sun, and most software vendors apart from Microsoft, which is not branding services so aggressively, are joining the gold rush.
- Google will launch a breakthrough business outside web advertising
Counting only their distribution deal with BSkyB, the YouTube acquisition, the launch of the core of an online office suite (Docs and Spreadsheets), and the challenge to PayPal implied by Google Checkout, it was a big year for Google. Going forward, the company is joining Amazon, Yahoo, and other search firms in building enormous data centers to support further expansion of so-called "cloud computing." George Gilder's recent article on these data centers in Wired, apart from its purple prose, is required reading, particularly for its take on the electricity consumption issues: http://www.wired.com/wired/archive/14.10/cloudware_pr.html
- HDTV will have collateral effects
According to market researchers DisplaySearch, HDTV displays broke through and accounted for over half of the North America TV market in 2006. Price drops continue, even in the face of such strong demand, in part because the big producers see additional production capacity coming on line in the near future. Verizon's bet on fiber to the home, meanwhile, may be concerning the cable TV operators, whose industry lab was reported this summer to have questioned the wisdom of long-term investment in a coaxial infrastructure with strict, and low, limits on HD traffic.
- The relentless reinvention of business markets by the Internet and digitization will continue
"Who might be next? Television is my best guess." With YouTube and BitTorrent both getting content distribution deals from major players, and with cellular continuing its push toward video, the motion picture and other video incumbents are confronting a dramatically different landscape. A big story here was ESPN pulling its cellular phone service after only about six months.
- The quiet march of robot progress will continue
The march was so quiet I couldn't hear it. There was no high-profile story on par with 2005's DARPA challenge, which will be re-run in 2007 in simulated urban traffic, rather than last year's open albeit obstacle-strewn desert environment.
- Sensors and other location-awareness technologies will make the news for an unexpected consequence
RFID in the supply chain is finally providing suppliers (as opposed to retailers like WalMart) with a compelling cost justification: promotion effectiveness. Think about a consumer products manufacturer (a fictional example would be a battery company before Halloween): if I deploy an expensive, time-sensitive end cap or other display, I want to know if a chain's thousands of stores are in fact displaying my promotional material and inventory. If they aren't on the sales floor, customers could be confronted with stockouts and/or I must take returns of seasonally-specific merchandise, such as Halloween packaging in November. Apart from that realization, the toll bridges, automated thermostats, automobile black boxes, and their kin apparently worked well enough not to draw notice. RFID-equipped passports are concerning industry observers who see how easy it is to read them from a distance, and a company that sells tags for human implantation (with readers being given away to emergency departments) is raising fears, but neither was a major story.
- The developing world will once again make headlines for innovation and not just cheaper production costs
A Nobel Prize for microfinancing in Bangladesh, Brazil's leadership in ethanol, and Korea's launching a mobile WiMax service years ahead of the U.S. or Europe all seem to count here. It's noteworthy that two of these three examples involve organizational rather than primarily industrial innovation.
Also in January, we discussed six macro trends, and several of them certainly made an impact:
Climate change: Just this week, a preprint of an article in Geophysical Research Letters suggested that the Arctic could be open water by 2040, maybe sooner.
Avian flu: Nothing on the epidemic front so far
Unstable energy prices: Big news here, especially mid-summer
The end of the bi-polar world: Russia, Venezuela, the Middle East, North Korea and Darfur certainly proved that regional instability can reach far and wide.
Decreased faith in government and authority: The U.S. midterm elections, a wide lack of confidence in the United Nations, and the privatization of large-scale humanitarian efforts by everyone from the Gates Foundation to Rick Warren suggest this trend is continuing.
Increased evidence of class conflict: "Conflict" may be the wrong word, because there was less overt class-related rhetoric this year than in Katrina or the Paris riots. But the word "separation" still applies, with significant implications for the middle class in industrialized nations: in 2005, the average CEO of a U.S. company with more than $1 billion in revenues made 262 times what the average worker was paid, the second-highest multiple on record. The average income of the top 126 hedge fund managers this year, according to Barrons, was $363 million, up 45% over the previous year. At Goldman Sachs, meanwhile, the mean average compensation for all 26,000 employees, from administrative assistants to top management, is $622,000 in 2006.
On that note, happy holidays. Watch for the 2007 predictions in January