Exponential Innovation: Past and Present
In a time of COVID-19, StartupYard Launches Remote Lab for Deep-Tech Startups
This summer, we’ve been talking about the concept of Exponential Innovation: what it means for the future, and what part governments, education, investors, and entrepreneurs have to play in that future. This post is part two of a two-parter about the history of work, and the concept of employment.
You can read the first part here. Or scroll down to the bottom of this post for an overview of the whole series.
Today, the number of workers in Europe and America who are employed by technology SMEs is higher than at any time in history. No surprise, considering that the capitalization necessary to start such a company has fallen at an accelerating rate, and global demand for niche solutions to an ever expanding list of services has exploded.
But as debt has become an increasing fixture of western economies, a focus on lowering entry-barriers to business ownership has resulted. Sensing the weakness of the corporate system, not to mention its increasing inability or unwillingness to sustain a person’s career, students and workers now increasingly seek control over their own livelihoods, resulting in a rapidly growing number of self-employed businesspeople in nearly every economy in the developed world. Across the globe, the complications of starting new businesses have consequently been steadily eroded and erased.
As Paul Graham of Y-Combinator famously pointed out in his essay “Microsoft is Dead,” large corporations have found themselves under increasing pressure from what were in 2007 still referred to as “web 2.0” companies. Unable to hire from the top of the talent pool anymore, technology companies in particular have had few options aside from either becoming infrastructure providers (as have Google, IBM and Microsoft), or acquiring a raft of new companies in order to acquire new lines of business (Yahoo, Facebook).
The massively capital-intensive software and hardware projects of the 1990s have been replaced by the lean startup. Now, an entrepreneur can build in his garage, in a year, what would have taken a global corporation a decade and an army of engineers to develop a decade ago. It’s no wonder then, that the hold on our working lives by corporations has loosed enormously.
This along with the trends in self-employment means that in effect, more and more of the products we use every day are being provided to us directly by their makers. While tech companies look big, as Facebook and Google and Apple are, increasingly the decisions about the products they create are being made on a much lower level- not as part of a corporate vision for the future, but as part of a corporate reaction to the present situation.
This can be seen spreading outside of the technology sector, driven by technological changes. Physical goods can be bought directly from their makers with Alibaba, Amazon, Etsy, and Shopify (along with our own Shoptsie). Content can be purchased from creators via Itunes, or consumed to the direct benefit of creators on YouTube. Books can be sold by their writers on Amazon, and homes rented and rides given on AirBnB and Uber, with everyday services provided through TaskRabbit (and many similar services).
And inside those big companies, features and products can reach customers faster, and evolve in direct contact with their actual users- turning product life cycles into smaller and smaller units of change over time, and cranking out improvements and innovations much more quickly.
In sum, global corporations today act increasingly as brokers for new products, rather than creators, designers, or manufacturers of new products. Their roles have become increasingly financial, as they leverage their capital resources to get control of new markets and products, and use their existing distribution networks to sell those products to their end users.
Work has even begun in earnest to eliminate these last vestiges of corporate control, with new platforms being developed around blockchain technology to disintermediate user-to-user interactions via blockchain technology. The 10-30% cut that Apple, Uber, AirbnB and YouTube now garner is fertile ground for innovators who want to put more of that money into the pockets of those who create and own, rather than those who control the channels of distribution.
Technology has indeed eliminated much of the need for assembly line workers, but it has opened new avenues to unimagined small businesses, and to potentially more rewarding careers and lives. The assembly line worker has, in many respects, more opportunities now than he or she did 50 years ago, because they can provide a service directly to the people paying for it, keeping a much higher margin of the profit for themselves.
Despite the effects of what Time Magazine recently called “financialization,” which describes the rise of modern financial services and “products,” and their role in increasing income inequality, still, average life expectancies and living standards have risen globally in the past 30 years, and fallen only in isolated cases, or for specific demographic groups.
When we read headlines about the fall of the American or European middle class, or rising income inequality, we have to consider these facts in the balance with the actual living standards of most of the world’s population. Political anger and nativism in Europe in America can be seen through this filter as well: the established middle class has not shared equally in the growth that the world economy has experienced; but the economy, and our average living standards have grown, and along with them, the risks of general war and famine have steadily dropped.
This is not to say that today’s situation is stable. As occurred during the rise of industrialization in the 19th and early 20th centuries, a vast demographic of people are being squeezed by innovation. The recent results of the “Brexit” referendum demonstrate clearly that our political systems have become unresponsive to the needs and concerns of those who continue to live outside of the cutting edge of economic growth in cities and financial centers. At no other point in recent history (probably since the very beginning of the industrial revolution) has the world been so divided between urban and rural mindsets.
Our individual roles in the economy are less and less clear, and the efficacy of education and job training are being called into serious question. But as history has also shown us repeatedly, the needs of society as a whole do tend to assert themselves given the opportunity.
In the mid 19th century, the works of Charles Dickens inspired new generations of people to fight back against rampant worker abuses in mining and factories, and to fight poverty as a social disease, rather than a moral one. In the 1920s, works by Upton Sinclair, like The Jungle, changed the way that people saw government involvement in food safety and urban planning.
Again and again, society has adjusted and corrected for one industry or another that has gotten too big, too intrusive, or too unmanageable for society as a whole. Again and again, we have found new ways of spreading wealth and innovation more evenly through society.
But this process is not clean, nor orderly. Today, according to a recent Harvard Poll, combined with data from Pew Research, support for capitalism in America is declining. There is a growing recognition, particularly among the young in America and in Europe, that the old economic order does not deliver the growing broad-based prosperity that it, and the political system that supports it, promises.
There is also a recognition that political action and changes in public policy are needed to stave off the ravages of market upheavals and the hollowing of the middle class. Support for a Universal Basic Income (a system in which all citizens receive an economic dividend regardless of need, as a replacement for older social support systems) is rising, and it has the support of none other than Y-Combinator, which is planning an experiment with the system in Oregon.
As YC’s Sam Altman put it in his blog post on the subject: “50 years from now, I think it will seem ridiculous that we used fear of not being able to eat as a way to motivate people.”
So what does all that mean about the future for you and me? What will be your job in 2026? How will it pay?
Firstly, it’s increasingly likely that you’ll be making things that people will want to pay for directly. As we have moved further towards a service economy, the consumer economy has begun to slow. This means that more often, new jobs will be those that serve others directly (including by making them things that fit their needs more closely), rather than making things which are more marketable to the widest possible audience.
One can see this trend in the consumer economy itself. Where 50 years ago, networks controlled television and garnered huge audiences with broad entertainment, today smaller networks go directly to their customers to provide value, producing far higher quality content, for niches of consumers who are willing to pay for it.
This has seen film decline as a popular medium (confining itself increasingly to tentpole spectacle movies), while television and SVOD services have become avenues for real artistry and niche productions. Netflix and Amazon have replaced NBC and BBC One, as the model for consumer entertainment. HBO has transformed itself from a network, to a content platform- but few others have been so agile, and many television networks now barely remain profitable, while those who achieve artistic success do so at the cost of much lower margins.
And that trend holds true across the board:
Recently, Y-Combinator released a very interesting set of statistics about its pool of applications over the past decade. The analysis includes graphs of applications by keyword, showing the trends of focus in the overall startup ecosystem, which largely support these conclusions. I will talk about a few of those below:
As you can see in the graph, Advertising once played an important role in the future of many of YC’s startups. This observation fits well with our shorter experience at StartupYard, where advertising based applications have become very rare indeed.
At the same time, SaaS, once nearly unheard of among applications, has risen sharply to become a feature in a large number of them. I would submit that StartupYard sees even more applications related to SaaS products (probably more than 20% of the total), because we are more heavily focused on software than Y-C has become.
These trends highlight a disintermediation of the value chain, from the end user of a software product or service, to the person creating it. A SaaS company usually sells a product to the people who want to use it, and are willing to pay for it. On the contrary, a company with an advertising-based business model sells access to end users. In effect, the end-users become the product, and the customers are the advertisers.
The emerging model removes the advertisers from the equation, or severely reduces their influence.
While that type of business has certainly not gone away (ask Facebook and Google), it has become less attractive to new entrants in technology. That signals a general shift away from treating end-users as products, towards treating them as customers, and it shows that technology is helping to refocus the service economy away from consumer-driven growth, and toward something new.
In effect then, technology is driving a shift away from selling people stuff, and towards selling people solutions to their problems. If that solution is a ride to the airport, or someone to water your garden, or to have someone make you an ugly sweater, then more often than not, there is someone providing that service directly to customers.
So what does this mean for the next 10 years? Well, I think the trend is inescapable. Globalization may be the watchword for nationalistic political movements in the west, but its actual impact on the economy is far less important now than when a majority of jobs in the developed world were low-skilled, and largely interchangeable.
The next 10 years should see jobs becoming more and more localized, just as technology allows new companies to reach global markets at very early stages.
Think about this: Uber and AirBnB may be global companies, in the sense that their technology is applicable anywhere in the world, but their impacts are almost entirely local. They change the way communities function- the way we treat our personal property, and the way we move and live in the world. A person with a manufacturing job in a car plant in Michigan makes cars that will ship everywhere in the world, and be exactly the same, wherever they are. But that same person may now find themselves engaging in a more local sharing economy: be it driving an Uber, managing an AirBnB, or working as a handyman or one of a million other localized tasks that can’t be automated (or for which automation is not desirable, like caregiving).
At the same time, that autoworker of yesteryear received a paycheck drawn from the profit of a large corporation that collected payments from all over the world, moving money off the balance sheets of other disconnected economies, and into its own. The corporation kept most of that money, and the worker got a piece of it. The local economy may have been enriched, but it was also highly vulnerable- one need look no further than our first example, in the decaying hulk of Detroit, once booming thanks to the world’s appetite for American cars, and now decimated by competition from abroad.
With “Uberization,” while some of the money is sucked up by large service providers (like Uber), the majority of the money paid for local services stays local. And because a tech company can operate from anywhere (despite the ongoing fascination with Silicon Valley), one region need not benefit disproportionately in that respect. The tech economy is already more decentralized than the auto-manufacturing economy ever was. There is every reason to believe that this trend will continue.
And as it continues, there’s also no reason to suspect that society and governments will not adapt and temper the worst traits of this new economy, to make it more workable. Individuals have more outlets to affect political and social change than they ever have before- so the idea that we are helpless at the rise of new tech titans seems misplaced.
And although big companies like Amazon are working to centralize and bundle the entire process of purchasing anything imaginable- from the device you look for it on, to the drone that drops it off at your door, the trend is to centralize the parts of that process that can be automated, where economies of scale can have the greatest impact. This “fatter pipe” that Amazon is providing also allows smaller product manufacturers and service providers to gain access to more customers, pushing diversification rather than killing off small businesses.
In short, and again, this is a reaction to the diversification of the economy, not a sign that the economy is less diverse.
So what will be your job in 2026? I think the more interesting question is not whether or not you’ll have one, but in whether or not you’ll need one. In a world where demand is democratized to such a degree that anyone, anywhere, can provide virtually any kind of service to anyone, anywhere else, you may not see your work in the near future as a job at all. Perhaps it will simply be your calling. That’s the best, I think, that anyone can hope for.
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