SMART CITIES and the Internet of Things (IoT) are up there near the top of the hype cycle. You don't have to be in the technology sector to know that anyone who reads fairly widely can't miss it. But I still come across people in the energy and utility sectors, construction and engineering, and even some apparently cutting edge renewable and clean tech companies, who don't really grasp what all the fuss is about.
This is a mistake. Whatever sector you are in, and particularly those of us concerned about sustainability, you need to get this.
With multiple challenges facing the world today, including growing urban populations, demographic changes and ageing populations, and climate change, the growth of disruptive technology represents both a challenge and an opportunity. The challenge comes from the pace and scale of change. Disruptive technologies such as IoT and artificial intelligence (AI) will fundamentally change every sector in our economy. This is already leading to confusion and fear in some industries – talk to any London cabbie. Technology analysts Gartner recently predicted that robots, drones and AI could replace up to one in three jobs by 2025. This isn't a choice. This is happening whether people accept it or not.
But get this right, and technology changes represent an exhilarating opportunity. Understanding and embracing the power of disruptive technologies can help us to help meet many of the world's growing challenges in new and innovative ways. While some dismiss what they see as a new tech bubble, many of us genuinely believe that we are on the cusp of a fundamental change in the way we manage human processes and activities.
To understand why, you need to understand what is driving the current wave of innovation. In seeking to lift the lid on this, I will be using some examples borrowed from the fascinating and thought-provoking book The Second Machine Age by Erik Brynjolfsson and Andrew McAfee, which I thoroughly recommend.
Consider the internet. Already something we take entirely for granted. In many ways the internet revolution itself is only just reaching its full potential. Out of a total population of 7.3bn people on the planet, over 3bn are active internet users and pace of growth is increasing rapidly. It took the telephone 75 years to reach 100m users worldwide. The mobile phone took just 16 years. WhatsApp took three. Candy Crush, the game App, took one year and three months to reach 100mn users. This hyper-growth in speed of adopting new ideas allows a level of innovation and entrepreneurship that was hitherto impossible. The fundamentals have changed since the dotcom boom of the nineties. And the way we use the internet is changing. Over half of all internet activity now takes place on mobile devices and it is estimated that some 50m Americans are to all intents and purposes never offline.
Benedict Evans, the Silicon Valley Venture Capitalist, has a neat story he tells to highlight this point. 'My Grandfather could probably have told you how many electric motors he owned. There was one in the car, one in the fridge, one in his drill and so on. My father, when I was a child, might have struggled to list all the motors he owned (how many, exactly, are in a modern car?) but could have told you how many devices were in the house that had a chip in. Today I have no idea how many devices I own with a chip, but I could tell you how many have a network connection. And I doubt my children will know that, in their turn.'
Our grandchildren won't even understand the concept of 'online'. It will just be how the world is. What is driving this change? A number of factors, but according to Brynjolfsson and McAfee the two which stand out are both probably well known to you – Moore's Law and digitisation.
Moore's Law was first articulated in 1965 by Gordon Moore, co-founder of Intel. He noted that processing power was basically doubling for a given cost every year. When he made the observation he predicted it might last for another ten years or so.
It turned out he was too conservative. Almost half a century on and despite its obituary being written regularly, Moore's Law is holding up well – although it is common now to use 18 months as the time period for doubling. Crucially, Moore's Law applies not just to circuits but to multiple digital processes. Why is this important? Let's illustrate it with a story.
Many readers may know the apocryphal tale of the invention of chess in 6th century India. According to the tale the inventor demonstrated his new game to the Emperor, who was so impressed that he asked the inventor to name his reward. The inventor said, 'All I desire is some rice to feed my family'. He suggested they use his chess board to determine how much – by putting one grain of rice of the first square, two on the second, then four, eight and so on.
The emperor was impressed with the inventor's humble request... until they began, and it turned out this would require more rice than the world had ever produced in the history of agriculture. More than 18 quintrillion grains of rice. So the Emperor cut off the inventor's head instead.
The key to this story isn't that enormous number. It is this...
You can get half way around the board, 32 squares, and you only reach four billion grains of rice. That's about 100,000kg of rice – just under 10% of India's annual production. But once you are onto the second half of the chess board, things really start to take off, and we quickly ascend into mindboggling numbers like trillions, quadrillions, and quintillions. Because if you look at a graph of an exponential growth curve, it looks almost flat – until it bends sharply upwards at almost 90% and points to the ceiling.
Let's come back to technology and processing power. Brynjolfsson and McAfee note that if we take 1958 as the starting point, the year that information technology was first recognised by the US Bureau of Economic Analysis as a separate investment category, and we take 18 months as the double time... then we entered the second half of the chess board in 2006. It doesn't matter how exciting we think the progress of computers and digital technologies have been to date. We ain't seen nothing yet.
It also doesn't matter what your prognosis is for Moore's Law. It doesn't have to maintain its current pace. Every doubling from now on – even if they start to take longer and longer – is a doubling of an already stupendous number.
Let's put this in some context. In 1996 the world's fastest supercomputer was the ASCI Red. It cost US$55m to develop, ran at 1.8 terraflops, and it occupied nearly 1,600 ft2 of floor space. Just nine years later it was overtaken by a computer that took up less than a square foot and cost US$500. It was called the PlayStation 3.
Remember when Cray Supercomputers were the bad boys on the block? The Cray-2 supercomputer in 1985 was the equivalent of the iPad2. The iPhone 5 is over 2,600 times faster than the Apollo Guidance Computer that put men on the moon. It's hard to grasp the pace of change, and that pace is getting faster.
And as Moore's Law is driving larger and larger improvements in processing power and speeds, digitisation is taking those improvements into new realms. In recent years a multitude of previously analogue technologies have moved into the digital realm. Microphones, cameras, accelerometers and other sensors are all now essentially microchips, and so Moore's Law applies. This has led directly to the revolutions we are seeing in AI, the Internet of Things, and concepts such as Smart Cities. These changes will disrupt different industries and sectors at different speeds but none will be immune, and companies that don't get this may find that when the tipping point is reached in their sector it will be too late.
Take the story of the video-rental firm Blockbuster. In 1999 the company owned 6,500 stores worldwide and were valued at US$2.6bn dollars in an initial public offering (IPO). That same year Blockbuster's senior management commissioned a report to understand how digital developments might change their business. Unfortunately for them, they picked the wrong analysts.
Their finding? 'Investor concern over the threat of new technologies is overstated.'
A year later, Blockbuster turned down a chance to buy a fledgling online video distribution brand called Netflix. Ten years after that, in 2010, Blockbuster filed for bankruptcy with debts of more than US$1bn. In the same year, Netflix was valued at US$13bn. Today it is valued at US$33bn.
Kodak practically invented the digital camera, but it didn't grasp what this meant for its traditional business model. It clung to film, it clung to its comfort zone, and in 2012 Kodak filed for bankruptcy after 124 years in business.
This is not a choice. Disruption is already happening.
Ultimately it isn't the technologies themselves that disrupt markets. It is the new business processes, the new ways of doing things that this technology enables, that are changing the world. This is where it gets exciting, because this is where the opportunities lie. It's already changing the way a wide range of industries function. UBER, AirBnB, Ali Baba, Facebook. All businesses that not only didn't exist ten years ago, they would have been unthinkable just 15 years ago. A description of their business models would have made no sense.
UBER hasn't created any new technology. It's just real-time data and communications using disruptive technology that we already take for granted – smart phones with real-time geolocation, always-on wireless connectivity, mobile machine to machine communications and increasingly sophisticated analytics. The result? The biggest taxi company in the world worth US$50bn – and it doesn't own a single taxi.
Creating successful companies in the Internet of Things and Smart Cities era doesn't require every company to create new technologies. It requires innovative thinking to create new business process and models that can apply those new technologies to existing markets and sectors. For the first time in many industries, we can understand exactly how each of our customers access our services or consume our products individually, and personalise a service to that customer. We can address real-time and emergent needs in a predictive manner, and move from capacity-led models to demand-led models. Does our customer want a car or a bus ticket... or do they want a journey? Is our traditional business model focussed on the process... or on the outcomes our customers ultimately want? This is as true for delivering municipal services in the public sector as it is for the private sector; the huge potential for driving efficiency, improving sustainability, and delivering better and greener outcomes for customers and citizens are self-evident.
This is about a mind-set change as much as it is about technology. The tech is the driver, yes, but as an enabler. The innovation that sits on top of it is only just beginning, and the opportunities are boundless –whether you are in the public sector or the private. Whether you are an architect or engineer, a retailer, working in a utility or in logistics, agriculture, healthcare or transport... change is coming to every sector and much of that change will, by accident or design, help curb environmental impacts and enhance resource and energy efficiency. You can choose to believe that or not. But you cannot hide from it. It is called 'disruptive' for a reason. Don't be disrupted.
This article was first published on BusinessGreen
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