2008 service based economy???? the future

Innovation Economy: Resist the hype but don’t ignore the realities Dr. Jimmy Schwarzkopf Research Fellow S T K I [email_address]

WIKIPEDIA STKI מתוך ויקיפדיה , האנציקלופדיה החופשית חברת STKI - Schwarzkopf The Knowledge Integrators היא חברת ייעוץ בתחום מערכות מידע בישראל , המפעילה צוות של אנליסטים . לקוחות החברה כוללים בנקים , חברות ביטוח , משרדי ממשלה , חברות היי - טק ותעשייה , חברות טלקום ועוד . באמצע שנות ה -80, ד " ר ג ' ימי ( חיים ) שוורצקוף ביצע את המחקר הראשון מסוגו אודות שוק טכנולוגיית המידע בישראל , עבור חברת DEC . המחקר הכה גלים בשוק הישראלי , ונתן תמונת מצב קונקרטית בשוק שהיה עד אותה עת בלתי ממופה . ד " ר שוורצקוף המשיך בחקר השוק ובשנת 1992 הקים את חברת Meta Group Israel , ששימשה כנציגות בישראל של חברת Meta Group העולמית . במסגרת החברה , המשיך ד " ר שוורצקוף לפרסם מחקרי שוק בתחום באופן קבוע , וכן לספק ייעוץ לחברות והארגונים המובילים בשוק . בשנת 2004 נרכשה Meta Group העולמית על ידי חברת גרטנר , וד " ר שוורצקוף והאנליסטים המשיכו בפעילותם בישראל תחת השם STKI .

This presentation is dangerous: will make people think about intelligence and wisdom (two very different things)

Evariste Galois (1811-1832)

accepted a duel with pistols.

spent the night before the duel in writing down his mathematical testament : theory of transformation of roots in algebraic equations .

If I could have predicted this ?? All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info “ 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…..

www.KurzweilAI.net

What has happened in 2008 and what can I do? … will this change INSTITUTIONS organization, production and consumption habits and norms ?

Is there a difference between economic cycles caused by:

Technology changes

Credit mismanagement

Prof. Prescott and Prof. Kydland

"contributions to dynamic macroeconomics: the time consistency of economic policy and the driving forces behind business cycles "

Forces behind business cycles :

Technology for converting inputs of capital and labor into output of goods (technology for creating value)

Technological change

Economic progress takes place by overlapping surges DRIVEN BY SUCCESSIVE TECHNOLOGICAL REVOLUTIONS Technological progress Time 40-60 years

FIVE TECHNOLOGICAL REVOLUTIONS IN 230 YEARS

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 :

A change in world view that calls everything you know into question

Paradigm Shift Rate is now doubling every decade

Prof. Joseph Schumpeter

Suggested that Economies are Driven by “ Creative Destruction ”

Shifts the Focus of Economics from Price Adjustment to Innovation

Financial Innovation Tends to Produce Sectoral Bubbles

Bubbles Tend to Eventually Burst

The Fallout from Bursting Bubbles Often Threatens to Trigger an Economy-wide Recession

TWO DIFFERENT PERIODS IN EACH GREAT SURGE big-bang Next big-bang Degree of diffusion of the technological revolution Time Kuhn’s “ boom” Schumpeter’s Creative destruction Turning Point Institutional recomposition and role shift INSTALLATION PERIOD ‘ Creative destruction’ Paradigm shift DEPLOYMENT PERIOD Reaping of growth and social benefits from the prevailing paradigm 2O - 30 years 2O - 30 years ???

Austrian-School credit cycle theory

Ineffective central bank policies tend to "artificially" set interest rates too low for too long , resulting in excessive credit creation, speculative "bubbles" and "artificially" low savings.

Low interest rates tend to stimulate borrowing from the banking system.

Leading to an unsustainable "monetary boom" during which the "artificially stimulated" borrowing seeks out diminishing investment opportunities.

A correction or "credit crunch" – commonly called a "recession" or "bust" – occurs when this credit creation cannot be sustained .

Recurring phases of each great surge

The changing face of the last 100 years

During the deployment phase: unprecedented opportunities and new business models

Prof. Carlota Perez : TECHNO-ECONOMIC PARADIGM SHIFTS

Which road should we take ? All Rights Reserved @STKI Moshav Bnei Zion, Israel +972 9 74 444 74 www.stki.info 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

directions of the current paradigm shift

FEATURES OF THE CURRENT PARADIGM SHIFT “ SERVICES”

Reinvest in human capital

Prof. Israel Kirzner

Into a world of men unable to learn … introduce a group of outsiders who are able to perceive opportunities …where a good can be sold at a price higher than that at which it can be brought.

This group of entrepreneurs …notice profit opportunities that exist because of the initial ignorance of the original market participants and that have persisted because of their inability to learn .

Assumption : Generation C is here The birth of Generation C (T people) Control Content Communicate Creativity Channel Creative Class Community Connected Co-Creators Cash Consumer 2.0 Conversation All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info

from BUILD product to CREATE service The New Economic Age All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info Red Ocean Strategy Blue Ocean Strategy Compete in existing market space. Create uncontested market space. Beat the competition. Make the competition irrelevant . 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 activities with its strategic choice of differentiation or low cost. Align the whole system of a firm’s activities in pursuit of differentiation and low cost .

So what do we do in the “New Era” ?

Shift to a solutions economy From product to service What are customers trying to solve? “ Less stuff… more service”

Service : A Definition

Cultural change: From product to service.

Service is produced and consumed at customer site and delivered by people.

A service is a series of activities that normally take place in interactions between the customer and supplier (employees, physical resources, goods and/or systems), and which are provided as answers to customers' needs.

Example: Suppliers of components with added-value

Suppliers deliver more than a product, they deliver a service :

involvement in design phase of final product

order process

delivery in-time and accurate

invoice process

The quality of the whole process is relevant , not only the quality of the delivered components.

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

-

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

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)

Wisdom of Clouds : "cloud computing"

What'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

Cloud computing is a simple concept:

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? 4+ billion phones by 2010 Web 2.0-enabled PCs, TVs, etc. Businesses, from startups to enterprises 1. data and services reside in massively scalable data centers 2. accessed from any connected devices over the internet . All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info

Cloud Computing Architecture Monitoring DBMS Management Stack Provisioning Manager Application Server Monitoring Provisioning Baremetal & Xen VM Virtualized Infrastructure based on Open Source Linux & Xen Data Center – 64 bit X86 All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info Open Source Linux with Xen Monitoring Agent Virtual Machine Virtual Machine Virtual Machine Virtual Machine Apache

History of Innovation

Computing and Communication Technologies Evolution: 1960-2010! Control Centralised Decentralised Cloud Computing

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)

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”

BOOK OF THE 1990’s

Introduced the business world to rethinking operations.

Demonstrated how process redesign can yield breakthroughs in performance

Put the word "reengineering" into the English language.

BOOK OF 2003 copied: “The Myth of Real Time Information”, HBR 1966 Tactical and Strategic IT management 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

Maslow’s hierarchy of needs

Access Proliferation

Video games

Email

XBox LIVE

Websites

IM

Search

Radio

DVD

Ring Tones

TV

Blogs

Magazines

Satellite Radio

TiVo (Starhub PVR)

Video On-Demand

Newspapers

Podcasting

Cell Phone

Source: Darwin Day Conference, Google

The Peopleware Ecosystem Peopleware WCM Security Application Servers EAI Web Services E-Forms/Workflow Search Development Tools E-Learning Directory Collaboration Expertise Location & Mgmt. SSO Wireless Business Intelligence Knowledge Mgmt. DM BPM Identity Management Composite App. Framework BAM

Infrastructures influence the new T person

infrastructure makes it possible for people to work where they want, when they want, how they want

SIX abilities needed:

Design – Beauty and uniqueness

Story – More than mere facts

Symphony – Seeing the big picture

Empathy – Understanding others

Play - Enjoyment

Meaning – Fulfillment

OLDENBURG: how infrastructure…

Time is primarily spent in :

First (home) place: isolated

Second (work) place: isolated

Third places : neutral public space to connect and establish bonds.

Big 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.

Defining the new world T PERSON = Neo-nomad

Prof. Ragnar Frisch

Willingness of people to substitute as well as their ability to substitute.

One decision that people must make is:

how to allocate their time endowment, which is the most precious resource an individual has.

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)

Tel-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

Paris 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

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

I have outsourced part of my life to external cognitive servants :

No longer need a memory

Google

Yahoo

Wikipedia

Personal Information

Smartphone tells me about birthdays, phones, addresses

Musical taste:

ITunes

Books and others:

Amazon

Social Capital

LinkedIn

Xing

Facebook

Jimmy’s Touch Points Buys tickets online Checks scores Looks for information about Nascar games Reads up on new cd releases Reads his friend’s postings Gets the latest updates on favorite teams Downloads Songs Music Sites Sports Sites Blog Sites Movie Sites Gaming Sites Google.com Searches for “what’s cool”

Transaction Sites Multimedia Sites Game Sites Social Sites Average person: 10-15 intimate 150 social 500-1500 weak links All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info Banks Insurance Travel “ Amazon” “ e-bay” YOUtube Slideshare Blogs Newspapers WIKIPEDIA Business Simulations Training Second Life Sales

Is it a coincidence or someone is playing with us 1) Google's dissemination of old United Airlines news resulting in a precipitous UAL stock slide 2) Google stocks appeared to fall off a cliff during the final few minutes of trading last week(Silicon Alley Insider has a minute-by-minute breakdown ), plummeting from more than $400 per share to around $200. Luckily, it turns out Nasdaq is declaring a “do-over,” canceling all trades above $425.28 or below $400.53. Nasdaq blamed the drop on “erroneous orders” that were “triggered by orders routed from another exchange.” So it has reset Google’s closing price at $400.52, up more than 5 percent from the day’s open. 3) Other news follows Google-related stock gaffe, during which Google Finance’s data was incorrect for more than 12 hours . 4) Apple stock briefly took a dive Friday after a CNN iReport post appeared saying Steve Jobs had had a major heart attack. Apple said the story was false. Stock prices fell as much as 5.4 percent before rebounding, according to Bloomberg. UPDATE: Here's CNN's official statement . CNN says it removed the story because the community brought the story to its attention. Importantly, CNN also refers to the content as "fraudulent," which is much stronger than "inaccurate." The SEC has already launched an investigation. What happened? In all cases: systems unchecked by human beings made a mistake resulting in massive damage to an already fragile market. What else can we expect???????????? But the episodes aptly illustrates how jumpy the markets are and how easily they could be manipulated. Posted by Dr. Jimmy Schwarzkopf

How do they happen…..

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

“ A Pattern Language”, Christopher Alexander

Each pattern describes a problem that occurs over and over again in our environment

Then describes the core of the solution to that problem , in such a way that you can use this solution a million times over

Without ever doing it the same way twice

Companies wake up !!!!!!!

Customers are:

writing about products on blogs

recutting commercials on YouTube

defining companies on Wikipedia

ganging up in social networking sites like Facebook

MOST COMPANIES SEE IT AS A THREAT

METAweb

METAweb phenomenon

(fi-nom- uh -non)

-noun

a rare or significant fact or event in the web that happened in 2007

something that is impressive or extraordinary that happened in 2007

Google versus ???

Humanity emits the data (words, pictures, clicks, and searches are the raw material)

Handful of cloud-wielding Internet giants like Google, Yahoo! or Amazon.com transform the info into insights, services, and, ultimately, revenue.

IBM Introduces 'Blue Cloud' Computing CIO Today - Nov 15 2007

IBM, EU Launch RESERVOIR Research Initiative for Cloud Computing IT News Online - Feb 7 2008

Google and Salesforce.com in cloud computing deal Siliconrepublic.com - Apr 14 2008

Google 10 years of innovation 1995 1998 2000 2003 2005 2004 2007 ? Core Search Ads Monetization Communications Collaboration ? All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info

Google ad

Open for Business

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

Soon each website will become a 3 dimensional room that can be experienced alone or with friends

All Rights Reserved 2008@STKI Moshav Bnei Zion, Israel +972 9 790 7000 www.stki.info Add your room to your site Invite your friends to chat and help decorate Express yourself Customize your avatar and stream personal photos and video Create your own virtual space Chat and interact with your friends in rooms you design

Second Life is the biggest virtual world

40,000 concurrency (at any time)

450,000 active users (last 7 days)

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

10 Gbps peak bandwidth

Source: http://secondlife.com/whatis/economy-graphsphp Million Square Meters of Second Life Land Total User Hours (millions) Source: Linden Lab

Currency: Linden$

LindeX exchange operated by Linden Lab

Buy: USD $.30 transaction fee

Sell: 3.5% transaction fee

Monetary policy

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

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 H&R Block Island BDO Stoy Hayward Island KAWG&F (Baltimore MD CPA firm), CPA Island Accenture We hope that during 2009 STKI will be present there and will have it’s first SUMMIT

Business Motorati SpokesAvatar: caLLie cLine H&R Block IBM Dr. Dobbs Life 2.0 Conference Cisco Best Buy’s Geek Squad Preen Principal: Aimee Weber Preen

Academia, museums, non-profits Princeton Art Gallery Science Friday International Spaceflight Museum Computer History Museum American Cancer Society Relay for Life

Government, politics and collective action US Congress European Community US Congress – hot topic legislation Campaign HQs Davos protest

METAweb REVOLUTION

The 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

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