Transcripts For CSPAN2 The Communicators 20140609

Smartphone, of course, you already had the device, you had the network in place, you were already paying for it. You had the app stores where software could be automatically downloaded to you, and google realized they had the mapping data, the gps data, and they said theres no reason why we cant put that all together and offer our own navigation app. So they did. They created google maps navigation, downloaded it to millions of android quites in a couple devices in a couple op months time, and suddenly Nobody Needed maps or gps navigators anymore. Host but that was helped by a decision by president clinton, correct . Guest yes. Host what was that decision . Guest the decision was to declassify the gps data. It was already out there, obviously, for military and intelligence purposes, and what clinton realized was, you know, they could still keep that use for it, but make it available to commercial and notforprofit uses, and suddenly we had the ability to, you know, find out just how well our tracking was. We knew where everything was. We sent a signal up to the satellite, come back down, and you knew where it was. Of course, thats one of many decisions, sometimes unintended consequences, if you will, that have created whole industries and really opened up technologies in ways that have built markets, jobs, economy, completely unpredictable ways. Thats the exciting part about a lot of this innovation, you never know where its going to wind up. Host now that googles been around for nearly 20 years, is it still a disrupter . Guest oh, it is. You know, we would still think of to it as an incumbent company, a Public Company and a large company, of course, they have to worry about things that startups dont have to worry about. But i think one of the Amazing Things about google at least so far in its history is it has never really made a huge blunder. Of course, little mistakes. Google plus, not so good. Some of the rollouts of some of their things. But what they understand is that theyre not in the search business. You know, they could have stopped right there and said, well, were making money there. They said, no, no, no, were in the information business. The more information weve got and, more importantly, the more information we give back in different forms sliced and diced, the more uses people will have, and the more things we can do with it. Of course, theyre into everything. Not just in search, but theyve got the driverless vehicles, theyre investing heavily this smart homes with their acquisition of nest, they got the google glass, so the next generation of display technology, energy, of course, they got into the broadband business in kansas city and now in other cities. They really understand that the more information there is, the bigger the company gets. And as long as they continue that philosophy and kind of innovate around it, theyll survive where other Tech Companies have kind of had their moment and gone away. Host in your new book, big bang disruption, how do you and your coauthor paul nunes define disruption . Disrupter . Guest well, were taking off of work that was done about 20 years ago by the Harvard Business School Professor Clayton Christianson who talked about a disrupter as one that enters the market, its a technology that kind of comes in. Its cheaper than what the incumbents are offering, but its not as good. Personal computers a good example. No one thought they were going to compete with mainframes or replace mainframe computers. Only hobbyists could get them to work, if at all. But slowly but surely as they got more customers and more revenue, they were able to move up through the market and take over, now, you know, of course, that is exactly whats happened. Mainframes are all gone, its banks and banks and banks of what are essentially personal computers. What we discovered in our research was that something fundamental had changed even from that very disruptive model. And that was that because of now, you know, many decades of computers Getting Better and faster and cheaper and smaller and using less energy all the time, it was now possible for a disrupter to enter the market not only cheaper, but also better right from the start. The example we started with, talking about google maps navigation. As a Smartphone App as compared to those standalone navigation tools or paper maps that you would buy from map companies, you are now getting something that was better because it was right on your phone, it talked to you, it was always being updated, it had, you know, constantly improved graphics and voice interaction. It was cheaper in the case of google maps, it was free, so cant get much better than that. And it was more custom. Because if you were doing a web search, you saw a place you wanted to go, you just clicked on it, and it immediately linked you right to the navigation app. Better, cheaper and more customized. Thats very, very hard to compete with if your an in if youre an incouple bent, and thats what we mean by big bang disruption. Host why do do you cite moos law . Guest one of the founders of intel corporation, and he made a really profound observation in the 1960s. He said the way in which semiconductors, computer chips are made is they have tremendous economies of scale, cost lots and lots of money to build an actual plant, a fabrication plant for chips, but once youve got it up and going, the more of them you make, the cheaper they become. There was also this miniaturization. As they improved on the engineering, they could make chips smaller. Not only were they cheaper, fewer pars, they also worked parts, they also worked better. So he ricketted in the 1960s that given the trends in engineering and manufacturing that every 1218 Months Computers were going to get twice as fast at the same price. And he said not sure how long thats going to last. Well, turning out its still going. Moores law is still in effect. Every 1218 months we get better, smaller, cheaper computer processers, also memory and storage, and thats whats driven the information revolution and, frankly, whats driven this disrupt i innovation to a large part. Host looking ahead, is moores law going to continue to be in effect . Guest theres always someone who says moores law has finally hit the wall, we cant get it any smaller, we cant do it, and sure enough, the engineers come up with a way. So i no longer, you know, my engineering props are badly out of date. I was an engineer, but i have my team of Kitchen Cabinet engineers who i always ask that same question to, and they assure me that moores law is in no danger of going out of business. We even have experiments with molecularlevel computing now that suggests we will continue to push this barrier into, you know, certainly the rest of our working lives. Host in big bang disruption, you write for incumbents and their carefullyconstructed strategic plans, big bang disruption is the innovators disaster. What does that mean in. Guest well, the work i mentioned earlier from professor christianson said one of the ways you had to respond when you saw these kind of worse but cheaper disrupters show up was that was the time for you, as the incumbent, to start experimenting. Again, if you were a mainframe computer maker in my example, when you saw the personal computer youd say to yourself, its no threat to me now, but this is a signal of something thats going to happen eventually, and its time for a transition plan. So what christianson said is you needed to start a cung works, you had to start thinking about it, launch your own replacement from within, if you will, which is very, very hard for Large Companies to do. We saw many large Computer Companies that were not able to make that transition, both in this country and abroad. Lots of them went out of business. Data general, unisys. We say this is the innovators disaster because now if, in fact, you wait until the thing shows up the worse but cheaper alternative youve waited too long, because when it shows up, its not worse and less expensive, its better and less expensive. In the case of our navigation example, we had Companies Like tomtom and garmin and magellan, and they knew that the smartphone was starting to take off. They understood that it was possible that somebody, google, apple, somebody else, a start startup, could launch a navigation app, but they said it hasnt showne yet, so well respond when it does show up. When it did respond, it took off, and within months you had millions of people saying this is better and cheaper, this is worse and more expensive. Which one am i going to choose . By then it was too late for them to respond. So we say that, in fact, innovators that is to say incumbent businesses of any kind need to start looking much earlier into the life cycle of new technologies and recognize that even before there is a product, there will be a lot of experiments going on to. Many of them are very visible, theyre right in the market. Things like kickstarter and crowdfunding platforms allow you to see how people are playing with new technologies. And what we say is thats the moment when you should get worried, and thats when you need to start planning how youre going to incorporate them. Maybe you acquire them, maybe you do your own experiments, but you need to start much sooner in the process than you used to. Host larry downes, do ma gel loan, tomtom, garmin, do they exist anymore . Guest they do. Frankly, theyre much smaller. They lost a lot of the value of their stock, their revenues and products. They still go in more specialized markets. You might still have an indash device in a higherend car. They would be the makers of that. But as far as that consumer business where you bought your own little standalone gps device, that business is pretty much gone. Host walk us through the four steps of the big bang disruption. Singularity, the big bang, the big crunch and entropy. Guest right. So this is sort of the new life cycle we see for how innovation enters, saturates and then leaves markets. And we picked those names, of course, these are all names from the Big Bang Theory of the universe. Were using it, obviously, metaphorically. But what we say is this initial period i was discussing where all these experiments are going on, thats the singularity. Its very cheap now to do experimentation. You can find people to fund you, you can work with offtheshelf component parts, you kind of throw them together and see what shows up. And what we see now is loss of that kind of experimentation in an incredible range of fields. You can go to brooklyn, new york, right now, its turned into this incubator of people doing their little startup and funding it through these platforms. It may be in food, it may be in fashion, it may be in electronics, 3d printing. Whatever it is, its very easy to do these kinds of experiments and find out if there is a market for them. In fact, you can find out if theres a market before youve invested any money on your own. So this is the hotbed which is kind of like when the universe was being formed. It was all compressed energy and matter, getting ready to explode. It hadnt exploded yet. Thats the second phase which we call the big bang. Thats when somebody finally figures out the right combination of technologies, the right business model. A good example of this is the kindle. There had been a whole decade of electronic book readers before that, but none of them quite got the right technology or the right price point or the right network or the right business. Amazon had the right. They put them all together at the right time, and when it launched, it wasnt a slow uptake, right . It wasnt taking market. The other ones had all failed miserably. They were gone. But when the kindle came and it was right, the market said, hey, this is what weve been waiting for. Weve heard about for a decade, finally somebody has cracked the code. And the uptake is, essentially, a vertical line. Its not about, you know, customer segments arriving in this nice, sequential way we used to think about it. Its a complete, catastrophic success. All your customers alive could be in the days if its a game app, could be in years if its a piece of hardware, but its a very compressed period of time straight up. Then comes the big crunch. Well, you got all your customers in a short period of time, you dont want to make the assumption that that Straight Line is going to continue indefinitely, because it wont. The markets are very fickle. Everything is now more like fashion in the sense that theres seasonality. If youre buying a smartphone, you dont expect it to keep selling for five years. You know youre going to have to have a replacement thats better and cheaper and smaller and more customized in two years time. Because if you dont, somebody else will. Thats the kind of model thats now playing out in all sorts of industries far from Consumer Electronics and computers. So youve got to be ready. The big crunch is going to come. Your current product, its going to die. Not quite as fast as that vertical uptake, but it is going to start to drop off very dramatically once the customers have sort of all arrived, theyre waiting for the next thing. And then that last stage which we called entropy, this is the home of companies who couldnt get out of the market in time. Maybe they werent allowed to like the post office. Theyre regulated, they were forced to stay in the market even when the customers have largely disappeared. So we looked at companies and agencies that were stuck in markets that were essentially down to a fraction of, a shadow of their former selves and looked at how they either managed in that much, much smaller world, or they found other ways to escape the incredible gravitational push of a dead market. Host where would you put twitter in those stages right now . Guest oh, twitters still very much in the big bang stage, you know . Its got that great story, how it was host lines still going up . Guest straight up. Of course, the pace of signups is not what it was in the first year, but its still growing very dramatically. The its still really finding itself as a company, what are the products, you know, how will they make money, i how will they diversify, will they go horizontally, vertically, will they do lots of acquisitions the way facebook is doing . But its still a very Young Company and definitely still growing in its initial product, so its in big bang mode. Host where would you put the cable industry . Guest well, im not sure there is such a thing as the cable industry anymore. Of course, the reality is one of the amazing thicks about whats things about whats happened in the internet and internet protocol products is it has now come pressed our world compressed our world, a world of voice, video and data in ways that nobody would have imagined, right . We used to have, okay, we think cable is for television, and, you know, broadcast is over the air, and, you know, phone companies do voice. Both the technology and the application were sort of thought to be restricted to one combination. Well, the internet has thrown all that out the window. Everybody can now do everything on the same network. So cable in some sense isnt what it used to be. Its not just about television. Its also voice, its also video, and its data. Its, you know, isps as well. So theyre in this mode of rapidly changing technologies. Of course, broadband, both wired and wireless, are improving dramatically thanks to moores law and all the corollaries that go with it. So on the one hand, its a very huge opportunity. And on the other hand, its an enormous risk, and thats, of course, the struggle that all industries that are in that big bang experience have to deal with. Host larry downes, what about the role of the government in regulation . Youve mentioned that a couple times. Guest yeah, its interesting. We did kind of a horizontal view in our study of industries. We tried, you know, again, we didnt want to just talk about Consumer Electronics. Computers make the best examples because theyre the most mature, but we wanted the look at every industry, so we kind of picked 30 different sectors of the economy and said wheres this happening, wheres this not happening or wheres it happening faster or slower and why . One of the things we discovered, i dont suppose its a huge surprise, is that most heavilyregulated industries think about health care or energy or, in some ways, communications are the slowest to experience big bang disruption. Why would that be . Well, in some ways the regulating, the regulators kind of create a barrier to entry. You might have a better and Cheaper Energy technology, but youve got to get permission to start selling it. You might have a better and cheaper way of doing health care, more effective way of doing health care. Maybe its wearable devices and sensors and monitors, but you cant as lots of companies have learned the fda doesnt approve it, you cant sell it. So in one sense those barriers, regulatory barriers slow down the way in which big bang disruption happenings. At the same time, when somebody finally cracks the code, voiceover internet protocol telephone is a good example of this, once they get in, its all over because a lot of times youll find, you know, Public Utilities or other regulated industries because of those barriers, they dont have a big incentive to inknow vase. Innovate. They may need to get permission from a Public Utility Commission before theyre allowed to invest in the next Generation Energy production or distribution. So if they havent done any innovating, all of a sudden an innovator arrives, it can be even more chaotic and catastrophic than in the competitive industries. Host where are you based, and whats your day job . Guest im based in Silicon Valley. I write for a number of different publications, and mostly im the last couple years doing research for this book. Host and this is your third book, correct . Guest yes. Host big bang disruption strategy in the age of devastating innovation. When you talk about exponential technologies, what do you mean . Guest a good example is one we talked about before which is computer technology. You double a number every 1218 months. Youre not incrementally improving it, in fact, youre exponentially ip proving it. You deep doubling a small number, youre getting a big number. Thats the kind of one of the main technologies we looked at. But, you know, there are exponential technologies in a lot of other fields as well. Some of them are not quite as developed, theyre not quite as ready for prime time. Things like the human genome project, for example, the cost of decoding or sequencing human dna is falling at kind of the same rate as moores law. If you look in optics, for example, the way leds are improving, its a moores law curve as well. Theyre doubling their capacity, keeping the price constant every 1218 months. Energy, were seeing some interesting signs of potential new, alternative sources, sustainable sources of energy that also may exhibit those properties as well. Any industry where youve got exponential technologies either at work or sort of supporting the work in the case of computers and information, thats where we see, of course, the most obvious examples of big bang disruption. Host much of our world here at cspan and in washington involves the energy and Commerce Committee or the federal communications commission. From your seat out in Silicon Valley, how much attention do you pay to what theyre up to . Host well, i pay a lot. I think many of my colleagues and certainly many of those in the Investment Community dont pay enough. These are areas where we have traditionally not experienced a lot of regulation, and we dont we think of this as what my friend adam calls permissionless innovation where were out in the valley, and we just do stuff, and we start selling it. Again, we just throw it up in the market and see if anything happens. We often get surprised when government regulators whether its the fcc or the federal trade Commission Show up and say, you know, you cant do that without our permission, or you cant do that without passing a number of tests, or, you know, filing all sorts of rates and tariffs and schedules. So increasingly, i think, those in Silicon Valley like myself recognize that we need a much more current understanding, certainly, of what washington does and doesnt do, and a much closer working relationship to make sure that they dont, i think often inadvertently, get in the way. Host larry downes, arent we in a sense in the age of a monopoly though . Or an old developly when it comes to that last mile into the home . Guest i dont think so. You know, were increasingly seeing, of course, you know, most according to the fcc, most americans have at least two if not more choices for broadband providing, and those could be cable, they could be tradition alltel phony, fiber, wireless. Of course, mobile broadband is improving at kind of a moores law pace, and possibly in the future satellite providers. Weve seen a lot of interesting moves there by people like directv and dish. So we have somewhat competition. Were getting more competition. But i think more importantly, we have to look more broadly at the entire internet ecosystem. Pause its not just competition directly between the carriers, theres also market discipline thats provided by the content providers. Increasingly, Companies Like google, facebook, even netflix can say, you know, we have the relationship with the customer. Its our content that theyre interested in, and that gives us leverage in how you might price your products or build out your networks or how you work with us. Weve seen lots of examples of that where the content providers, the operating system makers, the smartphone makers in the mobile world, they have leverage too. Theyre part of the competitive environment. And, in fact, theres more of them all the time. So in some sense, regardless of where youre actually getting your Internet Connection from, the people that run the network have a lot of Competitive Pressure both there actual competitors and then these more indirect ecosystem competitors. Host one of the examples you have in your book is an old school company, corning. And its role in our modern world. Guest yeah. So corning is great. They, of course, as you say, theyre a very old school company. Theyre in the physical business of making glass and sort of physical products. And they have become, i think partly by design, partly by good r d and partly by accident, theyve become a major player in the smartphone displays and covers for displays. It happened by accident. Theyve done an experiment, i cant remember exactly what they were trying to do, but back in the 50s they were working with a technology to try and find a more sturdy, unbreakable glass. The experiment didnt work, and they couldnt quite get the price right, and they kind of put it on the shelf until steve jobs showed up and said i need for the iphone, you know, i need something that go over the display thats going to protect it from all kinds of, you know, abuse as you can imagine is going to happen. And they said, well, you know, we did that experience, and we couldnt figure out an application or a price point for it then, but lets pull it down. And within less than a year, they were in production making gorilla glass and that, of course, has become their major product. Host is gorilla glass the standard for the industry . Does everybody use it . Guest not everybody, but it is definitely the dominant product. And, of course, theyve innovated up to i think gorilla glass 3 now, i saw at the Consumer Electronics show in will have, they were demonstrating the next iteration which would have antibacterial properties. Imagine its a very good idea. So they keep, of course, competing in some ways with themselves by constantly updating it. But, yes, no, there are other makers as well. Host whos this book written for . Guest well, the primary audience, of course, for all the work that a i do in this area is for what you might think of as the incumbents, traditional businesses, all the industries that we talk about in the book who are faced with the potential entrance of a big bang disrupter. Maybe its coming from a startup, maybe from someone like google moving into their industry, maybe even accidentally as in the case of the navigation products. But traditional businesses that need to learn this very different way of responding. They have to understand the four phases we talked about, the shark fin, thats the way markets now develop. And if its not happening this their industry today, it very likely will in the not too distant future. Were trying to help them prepare for that and learn how they can leverage what they do have; their expertise, their intellectual capital, their existing customer relationships. In a way that will help them not only survive the big bang, but actually come out better when its on the other side. Host whats the benefit to consumers to this book . Guest well, benefit to consumers is, of course, you know, i often say were live anything a golden age for consumers when products get better and cheaper every, you know, cycle whether its a year or two years or more. Were getting tremendous what we call in economics consumer surplus. And, in fact, so much so that the consumers now expect thats whats going to happen. If you remember when apple came out with the iphone be 5s, the consumers sort of were expecting the iphone 6, and they said this isnt the 6, this is the 5s, we dont want it. Were going to wait. Consumers are very savvy. Of course, they use social media to communicate with each other. Theyre essentially, now, the marketing function for companies. They decide whats the best product, and thats the product everybody buys. Second, third and fourth really dont get much business or certainly much profit. So for consumers, theyre getting much more leverage in all kinds of industries. Communication industry is another good example of where thats a happening. So for consumers, i think, this helps them to understand why it is that markets are changed and where their new power comes from and what they can do to leverage it, to exploit it not only with company, but also with regulators, get what they want or get rules they dont like taken away more quickly. All these sort of things in which social media has really empowered consumers in very dramatic and unpredictable ways. Host just recently we saw an article about a Company Called of course plus that facebook ucculus that facebook bought. Guest thats right. Host is that one of the ways to prevent disruption, is to buy your competitors or potential competitors . Guest yes. This is a very good strategy. Its been a strategy, by the way, for a long time. Out in Silicon Valley, for decades weve had corporate venture capital. Its kind of had its better and worse moments b i companies do come out to Silicon Valley. They invest along with the venture capitalists in new startups or very Early Stage Companies whose products or services may be, you know, closely related or integrated or even competing with what they do. We now, of course, have seen in the last few years some very dramatic examples of this with facebook and other companies doing billion, multibillion dollar acquisitions of companies that are incredibly early in their process. This the case of o to occulus, theyve only been in business for a little over two years. They started as a kickstarter project in 2012. Of course, the trick here is to do your acquisitions if youre going to acquire the disrupters, you offing dont want to do it too soon because as i said before, we may have hubs of experiments going on hundreds of experiments going on. That was certainly the case in this Virtual Reality gear. You pick one, more or less youre picking at random. Youre much more likely to get the wrong one. You cant acquire them all, so you have to wait. But, of course, if you wait too long, lets say, for example, twitter which you mentioned before. Imagine if before they went public, there was somebody who wanted to acquire them. Well, that point had been reached at which theres really no longer economically feasible to acquire them. They were going to go to the Public Markets and, you know, monetize that way. So theres a very, you know, increasingly short period of time between when a experiment is still an experiment and when it takes off as a big bang. If you want to do acquisitions as your hedge against disruption, youve got to be very much on target with the market, know what the technologies are, know whos developing them, know which ones the consumers are leaning towards or voting for and acquire them quickly. Host and something thats different in todays world is were doing these experiments and development in public. Guest yes. Exactly. One of the things, one of the side effects, if you will, of the information revolution and of Broadband Networks and mobile computing and so on is that its now much cheaper to experiment directly in the market, launch the product, see if anybody comes, launch a campaign, see if anybody donates to it than it is to build the way we used to which was in these very closed, secretive research and development labs. The price of innovation has come down to the point where it is now better to do it in the open than to do it secretly, and thats, of course, another big challenge for our friends in the incumbent businesses. Host the book is called big bang disruption strategy in the age of devastating innovation. Larry downes is the coauthor. Cspan, created by americas Cable Companies 35 years ago ask brought to you as a Public Service by your local cable or satellite provider. Cspan2, providing live coverage of the u. S. Senate floor reedings and key Public Policy events. And every weekend, booktv. Now for 15 years the only Television Network devoted to nonfiction books and authors. Cspan2, created by the cable tv industry and brought to you as a Public Service by your local cable or satellite provider. Watch us in hd, like us on facebook and follow us on twitter. Both the house and senate are in session today. The house is in at noon eastern for general speeches. At 2 00 theyll consider a series of suspension bills before beginning debate on legislation to authorize spending for 2015 transportation and housing programs. Votes on amendments to that legislation could occurte