The Biggest Money Opportunities of Our Era: and Healthcare is One of Them
September 11, 2014
Over the last two centuries, humans have made same astonishing inventions and discoveries that have transformed our everyday lives. Wave after wave of Innovation gave birth to industries that never before existed. The giants who created these industries shaped our daily lives, making tremendous profits in the process. Within decades, the innovations became commoditized, the companies turned into utilities.
We ask ourselves what will be the utilities of the future? The answer to this question will produce vast riches and transform lives. The four utilities that I list later in this post reflect a third of the global consumer spending. Think of it this way: One in every 3 dollars consumers spend will be up for grabs in industries that will be completely redefined within the next decade or two.
The 19th century was driven by expansionism which, in turn, was driven by the shift to “molecular innovation” – our ability to burn fossil fuels and thus create better metals and stronger machines. The global economy shifted away from human labor (including slave labor) into an industrialized society. Capitalism separated between asset ownership and the physical attachment to that asset in order to make a living – unleashed a societal shift that drove more of us into urban setting. We became an economy where manufacturing and trade created wealth beyond anything society had seen before.
Expansionism created new needs. Speed demanded faster solutions. Utilities spawned utilities.
Take the railroad industry, as a prime example of the first utility. Trains moved faster and further than the horse and canal delivery system that it replaced. As a byproduct, merchants needed to notify partners of what’s coming down the track. As a result, another industry emerged – the telegraph (communication) industry. Messages, which once required physical representation (in the form of words on paper, carried by people), became signals, transmitted over wires in the form of electrons, codified through Morse code. The ability to send a message, practically instantaneously, with comparably little physical form or human involvement scaled rapidly to ubiquitous presence, creating the second utility – The Telegraph Company.
The 20 century was marked by a massive shift from molecules to electrons. Electrification started as clean form of light which provided reading hours and electric “labor” at lower cost and better health. This was a business that would qualify as “clean technology” today. First generation electricity was very capital intensive – consumers were required to buy generators, light bulbs, wires and switches from Edison & Co. The system’s design, based on DC(Direct Current) limited its reach and economics, eventually being replaced by the second version of electric system design AC Power (Alternating Current). With that change came long distance power transmission, high-powered electric motors and a design that replaced Kerosene in the home lighting market and steam as motive power of our industrialized world.
The emergence of “electrons on tap” as a business model followed the model proven successful by the communication industry. Edison Power, Westinghouse and all their daughter companies rolled massive infrastructure of power cables, generators, switches and meters – all funded by the new mega-bankers. In the process, this giant eco-system created the biggest machine humanity ever constructed – the electric grid. The essential foundation of of the modern utility remains valid to this day:
- Replace molecules with electrons, at least when it comes to transmitting your goods over long distances
- Eliminate human labor to the degree possible
- Provide seemingly “infinite supply” of the service offered by the utility
- Allow consumers to pay per consumption unit instead of owning capital-intensive assets.
Utilities start their life as “science fiction”, come into existance by science, and funded by those who see further than their quarterly profitability indices. When they become ubiquitous we cannot imagine our lives without them – so much so that we end up regulating the industry to protect our way of life.
As the 20th century came to a close, the world saw the emergence of the newest data utility – the Internet. The adoption of Internet technology created a massive shift in almost every person’s life and industrial power balance. The underlying Internet infrastructure – transmission of data – was not owned by one or another company. Yet, companies that were smart enough to build the right platforms and dominate their layer – from Corning at the early days of fiber, Cisco at the routing level and all the way up to Google at indexing and search or even Apple at the smart device level – created layer upon layer of wealth for their investors and partners.
Companies that did not understand how this ubiquitous data tsunami was moving towards their “safe shores” woke up one day to discover themselves engulfed by a sea change – a term coined by Bill Gates at Microsoft. Indeed industry after industry were overturned by this “data utility” tsunami during the twenty years that followed his sea-change proclamation. Telecommunication providers saw voice calls, which were once carried over their wire infrastructure, lose out to Voice over IP (VoIP) providers. Media companies saw their entire revenue base shrink as advertisers shifted budgets to the likes of Google and Yahoo. Retailers picked a losing battle against the likes of Amazon and eBay, only to shut down category after category. The underlying forces, like powerful smart mobile devices; infinite bandwidth; cloud compute and storage infrastructure, and big-data analysis all converged to create the innovation platforms for the next generation of applications and smart layers.
The utilities of the 21 century
Ginni Romety of IBM talks about Big Data as the utility of this century. However, we believe Big Data is more an enabler than a utility.
In our opinion, the four utilities of the future will not be one major invention or discovery but a collection of them, chiefly:
1) Mobility utility – Drivers in future cars will go from hands free to feet free to mind free as mobility transforms into a utility. As fleets of autonomous electric pods carry people from point A to B, most people will prefer being chauffeured over owning and operating a car. More importantly, mobility as a whole will convert from asset intensive (owning your cars) to a service – a utility. The brand identity, whereby a person is identified with the car they drive, will shift away from affinity to the car maker towards the service provider. Electric pods which are quiet, clean, and most importantly, cheap and convenient will change urban and suburban life.
2) Perishable goods utility – Once we have the ability to transmit people, we can use the same underlying service to ship goods. Add to autonomous delivery the emergence of automated regional storage localized production and automated “final assembly” of personalized products powered by 3D printing. Consumers will experience delivery of daily consumer goods – all the convenience of WebVan without the prohibitive human cost involved in packing and delivery. This ubiquitous delivery will revolutionize our daily retail experience, and change our habits.
3) Health Utility – We expect a paradigm shift in the healthcare business model in the coming decade with the entire concept of healthcare shifting from an age-old model of treating symptoms towards a more holistic, preventative model of predicting, early diagnosing and ongoing monitoring. The health management industry, with its increasing cost-structure, will go through a massive transformation. A new proactive service will emerge, one that monitors and analyzes key sets of “health signals” around the clock, reacting to changes before they become severe illnesses. The health utility will collect massive amounts of health data through smart devices, offering preventive intervention and proactive “health agents” that maintain patients healthy at all time. By preventing illness we will see corrective procedures relegated to become a costly exception.
4) Media Utility – This utility has already begun to materialize in the form of Netflix, YouTube, Pandora and now Amazon. We now have a world where companies are offering ever-present infinite-shelf content and games creating a utility that delivers “entertainment on tap”. This utility is vastly different than the current media channels, in that it mainly collects massive amounts of content, offering personalized (big-data based) curation service to the viewers – playlists that adjust to keep you engaged vying for your attention and limited time. This utility is gravitating towards an unlimited use, fixed fee (advertising assisted) pricing model.
Much like past utility transitions, this one will mark a fault line. Some incumbents will attempt to protect their territories of past centuries, while innovators choose to shape the world of coming decades. Yet, much like Amazon has shown with eBooks, an incumbent can also choose to lead the coming revolution. Stakeholders need to make the implicit choice between taking advantage of the opportunity represented by this giant transition and defending against the inevitable change coming. Stay Tuned…
In our upcoming posts we will look at each of these utility transitions in detail. More importantly, we will look at the underlying technology shift that empowers each transition, the business frameworks that govern them, and the immense opportunities that the new utilities present to innovators, investors and society as a whole.
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