Bitcoin, The Blockchain & The Next Big Productivity Revolution

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We have had two industrial revolutions, but we have never had a service sector productivity revolution. We badly need one. The assets we use are poorly utilized and the services often provided today are expensive and poorly organized.

The internet of things offers us hope - a way to connect, organize and manage the massive complexity of real world interactions. The opportunity here is every bit as large as the first industrial revolution, but to make it happen, we need a secure, scalable technology infrastructure. In the Blockchain, the core technology of Bitcoin, we finally have that.

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Bitcoin, The Blockchain & The Next Big Productivity Revolution

  1. 1. Bitcoin, The Blockchain & The Next Big Productivity Revolution Sao Paulo, Brazil December 2015
  2. 2. An evolving perspective on how the Bitcoin, the blockchain and the Internet of Things will create substantial ROI. 2 Notes for SlideShare Viewers: This is the slide deck from my 2 December presentation to the Harvard Business Review’s Sao Paulo innovation meeting. For those who have seen some of my prior writing and presentations on Bitcoin, the Blockchain, and the Internet of Things, you will know I am very focused on the opportunity around driving increased utilization of personal and enterprise assets. In my recent clients work at EY, however, I have seen more and more opportunity in a second space that I had included in my previous assessment of IoT potential, the opportunity to decrease cycle times and raise productivity in service industries. The service sector, now much larger than manufacturing in employment and GDP has never had a “Henry Ford” moment, when productivity surged by 90% in a short period of time. Increasingly, I think that time is now. And the driver will be the integration of people, devices, with business processes and markets. Paul Brody Americas Technology Sector Strategy Leader Sao Paulo, Brazil 2 December 2015
  3. 3. The Next Big Productivity Revolution 3 Looking Backwards The Productivity Revolution Required Ingredients Dawn of A New Era
  4. 4. The Next Big Productivity Revolution 4 Looking Backwards The Productivity Revolution Required Ingredients Dawn of a New Era
  5. 5. Those who cannot remember the past are condemned to repeat it. George Santayana
  6. 6. There’s nothing new about cycles of innovation and disruption 6
  7. 7. There’s nothing new about cycles of innovation and disruption 7 Hours of Labor Per 100lbs of Cotton Processing 0 500 1,000 1,500 2,000 1780 1790 1795 1825
  8. 8. There’s nothing new about cycles of innovation and disruption 8 Hours of Labor Per 100lbs of Cotton Processing 0 500 1,000 1,500 2,000 1780 1790 1795 1825 British Textile Imports & Exports Value, £000, 1697 Prices 0 10,000 20,000 30,000 40,000 1784 1794 1804 1814 1824 1834 1844 1854 Imports from India to Britian Exports from Britian to World
  9. 9. Henry Ford drove a second industrial revolution but putting the model T on a moving production line 9 0 3.5 7 10.5 14 1907 1914 Assembly Time for Model T, Before & After Moving Production Line Introduced Hours required for Model T Assembly 90% Reduction in time required for assembly of a completed Model T
  10. 10. Global economic output corresponds closely with industrial output and the two big industrial revolutions 10 Between AD 0 and Ad 1700, GDP per capita was about $400 1990 dollars. No change. Starting in 1820, GDP started doubling every 35-50 years. - Average growth 1850-1900 was 1.4% - Average growth 1900-1950 was 2.0% - Average growth 1950-2000 was 3.8% Since the 1970s, however, growth GDP per capita in the mature industrial countries has slowed down and most of the global economic growth has come from the industrialization of China and other emerging markets. Shift To Services. Manufacturing = Productivity
  11. 11. Productivity is the problem that each industrial revolution has solved. But we have never had a service revolution. 11 UK Total Factor Productivity,1990-2012 UK Office of National Statistics, SoftMachines Blog Service productivity growth is much lower than manufacturing productivity growth. Information & Communications productivity growth is high, but it is a relatively small component of the total economy.
  12. 12. The Next Big Productivity Revolution 12 Looking Backwards The Productivity Revolution The Big Opportunity Dawn of a New Era
  13. 13. Show me the money. Jerry McGuire
  14. 14. Productivity in the service sector is a complex problem that many have historically thought was not fixable 14 Can we improve the productivity of a string quartet? Get rid of some of the players? Then it’s not a quartet. Have them play faster? Then it’s not Mozart.
  15. 15. The reality is that productivity in the service sector is much more challenging than a factory, but not less addressable 15 Scheduling Concert Hall Utilization Ticket Sales Facility Maintenance Actual time playing, very small
  16. 16. We believe there are two big opportunities areas where a revolution in productivity can occur 16 Asset Utilization Cycle Time Compression
  17. 17. We believe there are two big opportunities areas where a revolution in productivity can occur 17 Asset Utilization Cycle Time Compression
  18. 18. 18 Asset Utilization, Select Consumer & Industrial Examples 0% 25% 50% 75% 100% D ishw asher C ar O ffice M R I Taxi Airplane 60% 50% 25% 20% 4%4% Real world utilization of assets is much lower than we realize
  19. 19. Companies like Uber are using analytics and mobile technology to create real-time digital markets 19 ➡ Buyers and sellers can all see each other in a single UI ➡ Analytics show where demand is high and premium pricing is in effect
  20. 20. AirBnB, Unikey, and a group of service providers have worked together to speed up the sharing of apartments 20 ➡ Unikey smart digital locks are now available and can be connected directly to the AirBnB online market ➡ Renters can rent an apartment and AirBnB will automatically give them a unique code for the door valid only on the days when they are renting ➡ Renters can unlock the door with their smartphones ➡ Cleaners get a separate door code
  21. 21. All these productivity solutions have a common foundation: the increasing connectivity of people & devices 21 • What data is being generated by assets? Granular ability to understand assets will quickly shift towards a desire to take action on how they are used Instrument Optimize Monetize Sensor networks Asset Management Asset Markets • How are my assets being used? • How can I get maximum value from my assets? We expect every physical asset may participate in many different marketplaces The Internet of Things will become an Economy of Things Rental / Leasing Insurance Utilities Sensor Data
  22. 22. The return on investment that comes from asset utilization is much bigger than other “connected device” services 22 Case Examples: ROI on Smart Sensor Use Cases $0 $1,000 $2,000 $3,000 $4,000 Maintenance Energy Asset Rental Tag Cost Return Maintenance • 5% annual chance of mechanical problem • Average truck roll costs $100, 1.5 per repair • Smart systems eliminate some repairs and reduce average truck rolls total to 1.0/repair • $25 tag cost on BOM, 10% annual ROI Energy • $250 for a smart thermostat at home • Average of $141/year in savings reported for Nest thermostat users • 56% annual ROI on average Asset
 Rental • $350 annual cost for installing and managing connected tag on GetAround.com • $325/month average earnings for cars available on GetAround ($40/day average, about 9 days average rentals/month) • >1,100% annual ROI
  23. 23. The second big opportunity is for us to decrease the cycle time required to complete work 23 Asset Utilization Cycle Time Compression
  24. 24. When it comes to services and cycle time reduction, the scope for opportunity is just as large 24 Source: Ford history, Wikipedia Assembling A State of The Art Modern Automobile 40 Hours Renovating & Updating A Home Bathroom 4 Months
  25. 25. To achieve a cycle time revolution, Henry Ford brought precision, order, and speed into manufacturing 25 Standardized Process Standardized Components Synchronized Resources •Too many variants to easily apply in services & sites •Every site and location is unique to some degree •Impossible to find & coordinate all the people & equipment
  26. 26. Pervasive IoT combined with process orchestration software makes cycle time compression possible 26 Standardized Process Standardized Components Synchronized Resources •Apply process orchestration software to managed variants •Always be able to find the right tools & resources •Respond instantly to variations & surprises •Impossible to find & coordinate all the people & equipment
  27. 27. Many every-day business processes take much longer in practice than in theory 27 Illustrative Example Identify Broken Part Open Trouble Ticket & Order Spare Install Spare Test & Certify Update 15 Minutes 24 Hours 30 Minutes <25 Hours Identify Broken Part Open Trouble Ticket & Order Spare Install Spare Test & Certify Update 3 Days. Noticed but not documented for several days. 24 hours 5 Days. Testing & Installation Tools Missing When Engineer Arrived. Forced to Reschedule. 9 Days Theoretical Cycle Times: Real-World Experience: To make asset-light strategies work, companies need to squeeze big performance gains from existing assets, cutting the difference between real-world performance and theoretical minimums. The results can be better utilization of existing assets even as they age and require more maintenance.
  28. 28. A few companies are starting to demonstrate they can tightly integrate process & operations, however 28 Delta Airlines Has The Oldest Fleet of the US Majors, But The Best Operational Performance Average Fleet Age
 In Years Air Carrier Delays, Last 12 Months 0 5 9 14 18 DL UA AA WN 0% 2% 4% 6% 8% DL UA AA WN Air carrier delays exclude air traffic, security and weather and late arrival of incoming aircraft. Source is transtats.com
  29. 29. The Next Big Productivity Revolution 29 Looking Backwards The Productivity Revolution Required Ingredients Dawn of a New Era
  30. 30. You can see the computer age everywhere but in the productivity statistics. Robert Solow
  31. 31. To enable the next big productivity revolution, we have one required ingredient, we need two more 31 Connected People Connected Devices Digital Process & Markets A smartphone already lives in nearly every pocket. Our assets and tools need to be raise to the smart-phone level Secure, open, reliable software to build & operate digital services
  32. 32. The good news: thanks to smartphones, we are at the point where smart devices are cheap and everywhere 32
  33. 33. It’s now cheaper to make things smart than it is to make them stupid. 33 Powerful System on Chip costs are dropping so quickly, they are converging with traditional embedded chip costs: Non-Recurring Engineering Cost for Customized Embedded Chips Shift to SOC with software customization here Illustrative: As SOCs drop in price, customization will shift to software, not hardware Time + + + + Embedded Unit Cost Average Embedded Cost Average SOC Cost At higher end of the market, this shift has already started: These high powered SOC chips can run the full technology stack - they are servers in their own right, no need for a data center any more. Apple Lightning HDMI Adapter • Full ARM SoC with over 256MB of RAM • Boots OS X Core when plugged in • Conducts software conversion of MPEG to HDMI in real time
  34. 34. The computing power in every-day things is already more than everything in every data center. 34 Global Installed Base of Computing Devices
 Millions of Units in 2015 1 10 100 1,000 10,000 AWS Servers PCs SmartPhones 2,222 890 5.6 Global Installed Base of Computing Storage
 Estimated Petabytes in 2014-5 1 100 10,000 1,000,000 Dropbox Facebook Microsoft AWS PC Storage 890,000 900 300300 40 Installed base and company data center sizes are estimates based on limited public information. PC & Smartphone shipments from statistia.com. Storage data estimated assuming 1TB per PC.
  35. 35. To build a global network of billions of devices and people collaborating together, we need an entirely new approach 35 Secure Efficient Open Commercial
  36. 36. Alongside the revolution in hardware, a revolution in software is brewing at the same time: BitCoin 36 What bitcoin does is nothing special. How bitcoin works is revolutionary.
  37. 37. BitCoin is the re-invention of the most basic workload in the world of modern computing: transaction processing. 37 The Block Chain CICS in 1966
  38. 38. Though the results look similar to other systems, the way that BitCoin works is profoundly different 38 Distributed processing Every node in the network checks the work of other notes. Transactions are confirmed by a kind of digital majority vote.
  39. 39. Though the results look similar to other systems, the way that BitCoin works is profoundly different 39 Synchronized Records Every participant in the network keeps a copy of all the transactions. Transactions are secured by encryption to prevent tampering. Distributed processing
  40. 40. Though the results look similar to other systems, the way that BitCoin works is profoundly different 40 Distributed processing Synchronized Records Smart Information Transactions can be sent with rules attached - small programs that govern when and how money is delivered.
  41. 41. BitCoin may the single most secure piece of information technology ever created 41 Secure Efficient Open Commercial Resilient and reliable. Using the resources already there. Open source, transparent. Designed for commerce.
  42. 42. The core functionality of BitCoin, known as the BlockChain is now being re-purposed into all kinds of applications. 42 Application Development Environments Marketplace Infrastructure Systems of Record Distributed Social Networks
  43. 43. The Internet of Things 43 Looking Backwards The Productivity Revolution The Big Opportunity Dawn of a New Era
  44. 44. The future is already here, it’s just not evenly distributed. William Gibson
  45. 45. Productivity revolutions are disruptive. Capturing this value will be very very challenging. Five final thoughts. 45 Capacity Our understanding of capacity is still very limited Market Makers The first company to get it right seems to lead the market Growth Industry Growth Is Not The Same As Profitability Innovation Simplicity seems to be the key to speeding up adoption Consumers Where Consumers Lead, Enterprises Follow
  46. 46. Lead, follow, or get out of the way.
  47. 47. @pbrody linkedin.com/in/pbrody 47

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