The information industry is undergoing a major transformation, moving away from the current technology boundaries by which it Is organized to new frontiers. In the process, we must move from the rule of exclusion to a new one of inclusion or convergence. This, of necessity, will change our industry definition, our management practices and our public policy. In so doing, it will create a world that is more a win-win situation than a win-lose. Substitution of industries will occur, but there will also be significant complements created to existing Industrial. Ultimately, there will be very few bets. The people who lose will be those who are unable to detach themselves from antiquated thinking, thinking which is incompatible with the new emerging environment
The matrix in Figure 1 illustrates the major elements of the information industry. The columns are primarily organised by media, or technology, and the rows by the functions we perform with those technologies. In the columns, text represents the publishing industry or printing technology; image includes the photography industry or imaging technology; voice covers the telecommunications industry; video raptures the industry; and the computing industry is represented by data.
Now if we look at the rows, within the information function, we create and collect Information; we also display information through many devices, an example of which is users’ terminals; we store information and this is primarily the databases; we process information and this is the applications this area asks what do I do with the information, how ran I add value by manipulating it? Lastly, we distribute the Information and this is the transport, or shipping of the information, either one-to-many, many-to-one, or interactively.
As information technology and in applications invade society more and more, it is becoming increasingly more difficult to comprehend the scope arid size of this area. My estimate is that the industry already earns more than one trillion dollars in revenues worldwide. Advertising alone, on a global basis accounts for more than a hundred billion dollars in revenues. I have also been discovering new items of data that I never thought belonged to this industry. In a recent New York Times business article, John Scully discussed his excitement about this industry’s transformation. He forecast that the industry as it becomes more multimedia – and I think his emphasis is strictly on the display or device side, which is just one element of the tod – will exceed $3 trillion by the year 2000. He may well be right.
As the industry moves from being organized by technology sector to being organized by function, It is going to grow, rather than substitute. And the industry, for its own self interest, profits and corporate goals, will find that embracing this new pattern of organization will be very advantageous. Here, 1 forecast that the total industry will easily exceed $3 – 4$ trillion by the year 2000 or 2005, well within the foreseeable future.
Information Industry – Evolution Through Growth
Fundamentally, it is technology which is shaping the reorganization of the vertically organized information industry The Electromechanical age has had two fundamental rules the cost curve spread out over time, comes down very slowly and only over a long time period does it have a lower cost estimate (Figure 2). Even then it is still high, so very high economies of scale do not occur. If you think that we achieved great economies of scale in our automobile assembly plants, or within factories building large electricity generators, or through mainframe computers in our Industry, you would be wounded with the economies of scale possible with the transformation of this industry.
Here is an example. When you compare mainframe computing from the Electromechanical age to the PC, the PC has a 400 times performance/cost advantage. By the year 2000, experts are suggesting it will go up to 1000 times. Every electromechanical industry I have analyzed has always deployed technology following the inside-down theory. First, technology is offered to the government sectors; second — and after you recover your R&D costs — it is offered to industry, mostly to manufacturing; next Ii is offered to commercial or small business service sectors; finally, the last recipient of die technology turns out to be the personal or consumer market.
Using this logic, I tried to determine what major technological breakthroughs, or even product generation, was introduced directly for the consumer market by a Bell laboratories, or BT laboratories, or Northern Telecom or NBR. The only answer I found was in the telephone industry; is was the Princess telephone. There simply was no Incentive in the electromechanical age to deploy technology for the personal market. All the public policy issues as well as all the management Issues maintained that the consumer market could not afford to pay and hence was not a viable market. They took the easy way out. By adopting this approach, R&D recovery occurred very quickly is was a no risk strategy. That is how we operated in the Electromechanical age, but this in changing!
Moving from the Electromechanical age so the Electronics age (Figure 3), the fundamental change seen Is that the cost comes down very sharply. The lower unit cost becomes incredibly low quite rapidly, so In this case it in advantageous so deploy technology as quickly as possible to as large a base as possible. Hence, what is required is the reverse of the trickly-down theory. Now it is necessary to practice a trickle- up theory. For example, the first place to deploy electronics, especially digital. Is in the personal market, not the government market. The second place to deploy is would be small business, or the service sector market, not manufacturing. Manufacturing tends to be highly concentrated, therefore, she number of units produced and sold for the personal market is much greater. And in the government market, there may be only one customer buying a few units at a tune.
Japan has understood this fundamental paradigm shill in the way technologies are created and deployed from the electromechanical to the electronic age. Japan has always practiced the trickle-up theory, deploying the first state-of-the- art technology to the mass market. A good example is memory chips. Although Bell labs and IBM laboratories claim to be the inventors of memory chips, they limited initial deployment to the defence industry and mainframe computing, and later to the telephone industry. Japan, on the other hand, deployed memory chips (or calculators and watches (or the mass market. In retrospect, the Japanese calculated the business better and time has proved them right.
The development of LCD technology occurred in similar fashion. And while we think that going from analog to digital will give us tremendous competitive advantage in HDTV, the advantage is already lost, because the U.S and Europe have already determined that It will be deployed primarily so large business customers and so government accounts. The real issue of lowering the cost for HDTV technology would be resolved by deploying ii to the consumer market first. That is where the advantage will be. Digital will prevail anyway, that is not an issue. It’s the focus and the emphasis of the market’ which is going to make the big difference.
Another example is fuzzy logic. Fuzzy logic acts as the expert system on a product: it is the mechanical/electronics combination. This technology has been primarily deployed by consumer electronics companies. Perhaps the largest user of fuzzy logic is a company called Matsushita (Panasonic is the brand name). They have already destroyed the competition in the room-air conditioner business by adding fuzzy logic technology and now they are In the process of revolutionizing the whole appliance industry. An example Is the video camcorder which, with fuzzy logic, can be shaken without harm to it because that is what we do as humans. My view is that fuzzy logic must be deployed at the mass market first, although its best we is probably in a P-16 lighter plane.
Information Industry- Structural and Technological Trends
The Impact of the electronics age on the information industry has low-unique properties (Figure 4). First it is convergent in nature; second, it has tremendously sharp experience curves and this is a very important; third, it is borderless it can be any time, any place; and fourth, the technology is highly versatile — it can do things we were never able to do in the electromechanical age. These four properties of the electronics age will have tremendous impact on restructuring the industry and this is the main Issue I will now address.
In the information industry, there will be more and more specialization by function. There will also be significant amounts of ‘cross-industry’ consolidation. For example, there will be consolidation between the publishing industry and the entertainment industry; between cable and the broadcast industry (which is the wireless side of video communications and personal communications. You can also expect to see lot more emphasis on the personal user as the fundamental market over the institutional user. We will also see more am more technology fusion due to what is called mechatronics.
I anticipate that the information industry will specialize according to function and move away from the present specialization by form. At least five distinct, separate businesses will be organized on a global basis, earl multimedia in nature. Multimedia will be the buzz word of the 90s and beyond. And in this transformation, we won’t just be substituting dollar for dollar, but will be adding a tremendous revenue base, hence, the win win situation.
Pursuant to these changes, new industry groupings will emerge. We will form an industry called the information content business, another called information display, a thin will be Information storage, information processing will be; fourth, and the last will be information distribution. The publishing and entertainment industries will be consolidated into the information corners business.
Events around us already portend this phenomenon. If you look at the Rupert Murdoch group or the former Robert Maxwell group or the UI’s Reed Publishing or the Times-Mirror, you already see the boundaries between the newspaper Industry, the magazine industry, the radio industry, cable TV and the network being blurred. Publishing and entertainment are the two areas that will primarily dominate the content business.
In the future, just around the turn of the century, the telephone companies will be out of the directory business That business, both the yellow and the white pages, is a content business and the publishing industry and the entertainment industry will probably absorb content from this and all ether areas. The directory business simply no longer belongs in the telephone industry.
Another cross-Industry consolidation can be seen between consumer electronics and personal computer manufacturers, It is nor — the mainframe computer manufacturers who have lost by emphasizing government and large business markets over the personal consumer market, but PC manufacturers have also. PC manufacturers and consumer electronics companies will consolidate into a single industry called the Information display business. This is where I see john Scully’s reading of the future for his company and the industry as correct. The alignment will be more and more toward consumer electronics companies who will dominate the area of personal devices Personal media devices will all be multimedia.
I also forecast that the telephone industry will give up the terminal business on a wide-scale basis. It does not matter who the manufacturer is, but there undoubtedly will only be one or two left in the world. Most terminal manufacturers will make strategic alliances with consumer electronics companies or PC manufacturers.
In the computing industry, if a company has a mainframe computing mindset, or even a minicomputer mindset, they will not make the transition. There is no contest between the PC business for personal use and the mainframe business for large business use. The PC business will take over, as e has already done with distributed memory and processing.
So in the computing industry, I foresee very strong multi-user alliances between companies like Matsushita, Sony and Thomson, the three large consumer electronics companies. Toshiba, Sharp and companies like Apple and AT&T’s Consumer Products Division will also align with each other. Unfortunately, for companies that are very highly vertically integrated, unless they break into smaller business units, the transition will be very painful.
In the processing business, computer companies and data processing centres such as Andersen Consulting or EDS will become major competitors. The mainframe computer manufacturing companies, or whatever Is left of them, will consolidate Into a single industry called the information processing Industry.
The Telecom area will become an information distribution business in which the public telephone network, the P11’s of the world, cable ‘IV, broadcast and the wireless networks will compete and align with each other. A very significant impact in our industry due to the huge presence of the private network operators. Sods the wtie4ine left as PBX based, as well as the wireless radio-based private network, will all converge aggressively. While it is difficult to predict the winners or the losers at this stage, it is certain that many alliance and convergences will take place.
The second major impact on the industry will be the explosive growth in the personal use marker which will surpass the institutional market in the personal market, people don’t out when they call whether the information goes back and foals over copper hard wire or cable or if it goes over the air. It does not matter to the caller. My belief is that the industry is too hung up on the issue of wireless versus wire-line. Basically, we must stay with the two forms for connectivity.
The dominant medium will be neither data nor voice but video, and second will be voice communication. So video and voice driven technologies are likely to grow faster than any other combination of information media. Personal markets will become multimedia in each of the information businesses and will become universal through global standards and mass customization.
Personal markets are already global and If you don’t believe it, think about the globalization of electric transistors. While Bell Labs invented it, it took a Sony to make a portable transistor radio arid, as we all know, portable transistor radios are now owned all over the world. There are portable radios today in the jungles of the Amazon or in the remotest parts of India. The same is true of television.
A new model of technology seems to ask, how can we take one technology like mechanics and superimpose electronics on it? Or, how can we take electromechanical technology, or chemical, and superimpose electronics and converge them? How can we add value so that they are no longer substitutes one for the other but are complementary? This is a fundamental paradigm shift. One example of this type of convergence is what I call the smart toilet A dumb toilet costs less than $200 but smart” toilets cost about $2,500. In Japan, seven million units have already been sold, so this is no small fad business. And what does a smart toilet do? The answer is it does everything. It will wash yeas, dry you, clean you and it will also make your blood pressure and temperature and send them by NiT telephone lines to your medical centre. It can also do a urine or stool analysis and send that information out. The value-added capabilities here are enormous.
Just think of the uses for this in advanced countries where there Is a significant aging of the population. The oldest nation in terms of aging is Sweden, second Is Japan, third, West Germany, and the U.S. is fifth or sixth. We are all growing older and now we have the emergence of telemedicine.
The concept of telemedicine is very real, as is the concept of tele-education or tele-business. What began as telemarketing is transforming into all other areas of business. We see not only tele-marketing, but telecommunicating and tele-shareholder management. Tele-service and tele-business are the new concepts versus the distributed workplace.
Cross-technology fission will add significant time and location values. We have not yet seen the full impact of the barcode which will be enormous and is currently revolutionizing industry after industry. Cross-technology fusion will also enhance both economies of scale and economies of scope with huge capabilities.
l am a strong proponent of the idea of being the master of our own destinies. Let me give you an example: the Chinese restaurant versus the French restaurant. At the French restaurant, people eat only occasionally, the prices are very high, the menu is very limited and it takes a long time to get your food. It ban obsolete model which was line for the electromechanical age. In the future we will have to use, both for manufacturing and services, a concept like the Chinese restaurant. People eat often at a Chinese restaurant, the prices are reasonable, the menu is very large — a listing of one hundred and twenty items is common. The cycle time In a Chinese restaurant is so short sometimes I worry that, while i’m still talking to the waiter, my dinner will arrive. And, this is a concept for the future that I think information technology will be able to offer.
Information Technology – Market Driven Policies.
Now, what does all this mean from the policy point of view in all three areas — industry policy, management policy, and public policy. My opinion is that all three areas are founded on the principal of exclusion: I give you a franchise which means nobody else can do business. I give you a patent and nobody else can have the invention. This was fine in the older technologies, but now we must move away from exclusion to inclusion. For the information industry will be necessary for the content providers of information and the conduit providers of information to work together.
At the industry level it will be necessary for the devices and the networks to come together. We can not cake intelligence away from the network and put it into the devices, or cake all the capabilities from devices and put them into the network. Everything must be distributed In both places and both will have to work together.
Similarity, the world of wireless and wire line must be made complementary. The potential is enormous if only the tinkers of the future will nuke it work. Here is another example. How many people who subscribe to a cellular line anywhere in the world have given up their paging service or their land based subscriber line in the process? Not very many. The industry and policymakers think they are dichotomous, that one is a substitute for die other, but the market tells you up front that they are highly complementary.
This carries over into all mass media. A family needs one radio, possibly two, but most have six radios on average. In my home there are only two of us, at empty nesters, yet we have fourteen radios not counting those in our two automobiles. The industry will have to leans how to convert and complement wireless and wire line technology.
At the company level 1 see the following convergence. The functional organizations will have to converge with market organizations, and both the process and the people will have to converge. The oldest debate In the world is whether we get productivity out of the people or out of the processes. My belief is that information technology will allow us to get more productivity by converging the process and the people.
At the company level there is no longer just a domestic market. The franchise may be domestic but the user is global. The definition of what is local and what Is Inter-Local or long distance is blurring so much that we can not say this is exactly where one stops. At this time, l am doing a study on the total telephone traffic in the world by looking at only the top one hundred dries of the world. I estimate that sixty-five percent of the total network traffic – voice, data, video, however you tweak it up — is concentrated among those one hundred cities, as I plot the origination/determination matrix. The rest of the world does not matter. Civilizations never were organized around countries, but always around dues, far back in history. My hundred cities define the network of tomorrow; as these cities change different networks will evolve. The boundary between being strictly a regional holding company and strictly a local exchange carrier will quickly change, just at international travellers quickly change air se over countries.
The policy area is an interesting one. We need an overall policy, and must do away with having a separate computing policy, Telecom policy, publishing policy and cable TV policy. There also has been a public policy for the military market, which is different from that for the commercial market, and significant policy differences between public infrastructure and private infrastructure. Policies for all will have to blend. We must have a single if policy; the technology demands It.
Actually what I see as changes are in reality barriers. Technology will try to break through these barriers and the sooner we prepare ourselves to move toward the future the sooner we will deliver the future. The future is there, and it is coming fast. It is very much a win-win situation, but the mindset of management is slowing it down more than anything else.
In summary, technology shifts front electromechanical to electronic are transforming the information industry. The industry will be reorganized around information functions and move away from information media as it is now organized. There will be at least live separate businesses — information content, display, storage, processing and distribution with cross-industry consolidation.
Some may worry about industry consolidation, about computing companies getting together, telephone companies getting together and so on, but that is where the future lies The total size of the information industry will grow enormously as it shifts toward the personal marker but still includes institutional markets. This is where the real money, the real dollar value is.