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Apps Lead the Way to the Next Innovation Hypercycle

December 10, 2012

By Mark P. Mills

For those who want to see the "future that has already happened" (to paraphrase my favorite Peter Drucker aphorism), I recommend reading three illuminating reports.

  • Soft Power: Zero to 60 Billion in Four Years, from Entropy Economics
  • Industrial Internet: Pushing the Boundaries of Minds and Machines, from GE.
  • Analytics: The real-world use of big data, from IBM and Oxford.

In these you will glimpse the scope of the next great hypercycle of innovation that is underway. The leading-edge bellwether of this blossoming revolution, the one that portends a trillion dollar industry? It is the lowly little App you find on your smart phone or tablet.

The new App Economy is causing a tectonic shift in the software industry, and it is one that will propel the entire economy. No, this is not hype about social media and gaming, but a heavy-duty industrial class secular change. After all these decades, the real power of software is finally being realized in the maturation of algorithms into tools that are genuinely useful to anyone and soon everyone, and for any thing and eventually every thing – software’s power unleashed, or Soft Power.

Let’s start with two facts highlighted in Soft Power, the brilliant analysis of the evolution and state of the mobile app economy written by my friend Bret Swanson.

  • Spending on software now accounts for over one-fourth of all U.S. private real fixed investment.
  • The world has gone from zero to 60 billion mobile apps downloaded in just four years. Apps are the ascendant form for software.

The measure of the utility of any product is in the rate of market adoption. Swanson observes: "Has the world known a faster, broader, deeper diffusion of a major technology? Doubtful." No kidding. What product in history, of any kind, has been propelled so fast to market at such scale? These scales are usually found in commodities measured in bushels, tons or barrels, not highly specialized exquisitely manufactured products like an app.

While we’re dealing with staggering numbers, think about a trillion of something and consider what Flurry just reported. Flurry, established in 2005, is venture-funded and doubtless headed-for-IPO and offers the big data platform upstream that gives apps their smarts. Flurry just reported that in November 2012 they hit one trillion "unique events" in their corner of the app economy where they provide the analytics for 250,000 apps. From zero to one trillion in fewer than seven years! (That velocity deserves the exclamation mark that has never before graced the ’pages’ of this column.) FYI, Flurry clarifies: "Events are actions completed by consumers inside apps such as completing a game level, making a restaurant reservation or tagging a song."

Apps, for those few, those precious few, who don’t know about apps on their iPad or Android, are the highly-specific software "applets" (the origin of the contraction) that let your mobile device perform near magic. Apps glue together the functionality of three enabling tech revolutions: "highly personal computing" (Swanson’s phrase for computers that people carry everywhere now – smart phones and tablets) with features like geo-location and personal data, connected by ubiquitous broadband wireless networks to by-the-drink supercomputer-scale data mining, extraction and analytics. Software has finally mutated into highly-customized, highly personal, and enormously useful tools in the form of apps.

Apps are what makes mobile smart. They include providing physicians the functional equivalent of a nursing assistant or a diagnostic sounding board (remotely accessing the artificial intelligence native in IBM’s Watson supercomputers), all the way to giving a farmer weather-through-commodity-market decision capability on irrigation and harvesting, to interactive learning. The list of applications for apps would run to thousands of pages precisely because of the ease with which useful specificity is now possible in app formulations.

As Swanson notes, we have only just begun. He writes that by next year sales of smart mobile devices will exceed one billion units, and:

  • "The colossal numbers of these devices, and their connectivity to each other and to all the Internet’s vast resources, creates a market so large and so diverse that the economic forces of innovation and specialization are supercharged. This platform of distributed computation and bandwidth offers unlimited possibilities to create tools and content serving every interest. "

For those interested in the associated physical infrastructure that lies beneath smart mobile, consider another Swanson conclusion (wherein we’ll explore the power implications another day; see for now my earlier column):

  • "This dependence on the cloud will require ever increasing network coverage and speed. This means more cell towers, more small cells, more Wi-Fi, more advanced technology like LTE and MIMO, more spectrum, and of course more investment."

Apps are the user-facing and friendly part of the Promethean compute power that resides in the Cloud. And while the app revolution started with the easy stuff like games, social interaction, Instagram-like photo services, making newspapers easier to read mobile, or restaurants easier to schedule, apps now migrate to seeing, controlling and scheduling everything in the interstices of our economy, including things like automotive and aircraft maintenance. Imagine the possibilities.

You don’t have to imagine too hard if you read GE’s new White Paper about the emergence of what they choose to call the Industrial Internet. The phrase is GE’s version of the Internet of Things (IoT, about which I’ve written previously, here). While it is self-serving given their market focus, GE’s paper is nonetheless a fresh look premised on three grand revolutions: the Industrial Revolution, the Internet Revolution, and now the Industrial Internet. GE is betting on profits from helping industrial activities that have been thus far largely untouched by the efficiencies of what the Internet has done for social and light commerce.

Other corporate behemoths have previously spun the tale of the IoT. Verizon is making an aggressive move into this space, buying earlier this year Hughes Telematics to get into fleet and vehicle data streams. See for example, Verizon’s presentation on the Rise of the Machines outlining the value of machine-to-machine (M2M) networks. (The "M2M" locution is how engineers unexcitingly labeled one big piece of this domain that began some years back.)

Then there’s Cisco which has been nothing if not loquacious on this subject for years, mapping out the IoT in a series of analyses. As one tiny but illustrative example, Cisco notes that soon networks will be moving 200 megabytes of sensor data annually per cow. There are a lot of cattle on the planet, as well as animals of all kinds, and data about them and their environment is valuable. CEO Chambers has pronounced, often, that the IoT will become the "IT platform of the future." Recently Cisco raised the bar on nomenclature to talk about the Internet of Everything (IoE).

But GE is trying to keep it "real," focusing on the business of the here-and-right-now. Their paper provides a fact-rich exploration of the scope, scale and implications of bringing connectivity and analytics to the "spinning machines" and similar hardware in every rail car or power plant, every aircraft or sugar plant, every drill rig or hospital CAT scan. See the pattern here? Those are all GE’s industrial equipment markets. GE notes that as the Industrial Internet becomes an essential feature of the globes $32 trillion in industrial activity, a mere 1% efficiency gain from Big Data will generate tens of billions of annual savings, making the world more productive, wealthier, safer – and cleaner. Unlike many Silicon Valley enthusiasts with DNA in consumer product markets, GE understands and can penetrate the institutional inertia in industrial markets.

There are some who sniff at GE’s pretensions, riding Silicon Valley’s style after coming late to the party (see Business Week’s GE Tries to Make Its Machines Cool). CEO Immelt shamelessly unveiled their Industrial Internet meme at an event in a de rigueur warehouse-style headquarters in San Francisco where they will be housing a new 400-person software operation. But don’t be too quick to dismiss this move. GE-class companies don’t so much lead innovation itself as effect the massive penetration of innovation in resistant industrial markets. It is the latter that changes the game. Without GE and a handful of others fabricating thousands of incredibly complex megawatt-class aircraft turbines, there’d be no ubiquitous global air travel. The latter changed the game, not just the invention of the aeroderivative turbine. You need both, of course, but great technology lying fallow is worthless.

The relevance to the app economy? The Industrial Internet will be made useful to end-users in the form of apps. It has started. Just one industrial-class example: Panoptix, a Johnson Controls subsidiary, has an app store for energy management of commercial buildings. And in another (more exciting) domain, genetics, we see BaseSpace announcing a January 2013 launch for apps for industrial biology. If ever there were a place where complexity needed to be stripped out, and ease of access created, it’s in genetic engineering.

Even the high-performance computing (HPC) world, where the dreadnaughts of computational capability reside, is turning to apps to civilize power and complexity – and critically — practically eliminating the need for end-user expertise. This will make supercomputers usable and malleable tools for humanities majors. Take hope, my humanities-oriented friends, software is finally getting good enough to shift engineers to the back-office and unleash humanities-centric creative thinking at the front office, which will be transformative. Radically new products and services will emerge from creative artistic and design skills, and what my friend Northwestern’s Dean Julio Ottino calls "whole brain engineering."

At the top of the dweeb-tech food chain, the National Science Foundation is using the app model in its to advance R&D in nanoscale electronics. And going from the sublime to the ridiculous, at the other end of the industrial spectrum we find that consumer product giant Proctor & Gamble has embraced the app model (advancing Pampers takes much more research than most realize). P&G’s Tom Lange has said apps allow HPC-class simulations to became part of everyday decision-making.

So GE brags about the terabyte of data that flows out of a single jet engine on a single cross-country flight. Multiply that by the number of engines (tens of thousands), flights (hundreds of thousands), and then similar machines (hundreds of thousands), and the scale of the data stream moves into the same zetabyte class of data flows Cisco already counts in the existing Internet. And this, not incidentally, is just for aviation and spinning machines. You see the scale of the data analytics challenge. The data tsunami will be unprecedented.

Thus we see the need for apps – and the rush to understand, educate, study, and invest in Big Data analytics, the engine behind the apps. Google the phrase "big data analytics" and you get 50 million hits. Talk about a tautology. (For those who forgot the origin of the name Google, a googolplex is a specific if unimaginably large number.) I’ve written earlier as well about this powerful business opportunity and existential transformation wherein we expect to see the big dogs of IT such as Microsoft and Oracle, but where start-ups can also grab land-share because this field is amenable to intellectual acuity, not just corporate scale.

Next consider for our purposes of illustrating the market for apps in the business world, the new global report from IBM (NYSE: IBM) and the Saïd Business School at the University of Oxford: Analytics: The real-world use of big data. Oxford’s Saïd surveyed over one thousand businesses and found that three-fourths are currently engaged in Big Data development efforts. And while most (47%) are still "in the early planning stages" and only 25% have the "required capabilities to analyze highly unstructured data," we are seeing that the tipping point has been reached. (To gain a better understanding of analytics I recommend my colleague Jim Manzi’s Uncontrolled, and Steiner’s Automate This, which I reviewed earlier here.)

What else is there to connect onto networks beyond GE’s industrial markets in the "everything" category? Well, everything. Not just cows but crops and personal cars too. There is a rich lode of actionable and thus profitable data in all that we use, mine, process and transport today, and a lot that we haven’t imagined yet. Climate Corporation, formed in 2006 by two former Google employees, isn’t looking to fix the climate but to predict it at a very granular level for farmers especially, or anyone else that cares. They match up terabytes of information on soil characteristics (down to two square miles) with "one million points the government scans with Doppler radar."

Then there’s another start-up, MetroMile, which uses the data stream from your car’s OBD port to let you buy insurance by the mile. (Yup, you’ve got an On Board Diagnostics port, unless you drive a real old car.) They meter mileage and charge for the product – insurance — essentially as a utility does for gas or electrons. Slick. Except their real target is to mine the rich stream of data the OBD provides about your car’s engine to sell you more useful services later.

No one has fully imagined how machine data flows can and will be used. Nor can one fully imagine what new forms of data we will yet have access to as sensors, and sensor platforms, proliferate. Man the battlements once data streams are unleashed from the still nascent drone revolution, or the flurry of bio-sensors that the Millennial generation seems eager to embrace, wear and likely soon embed.

We know that the Industrial Internet, and the IoE, is made possible by the collapsed cost, size, and power appetite of sensors, the ubiquity of connectivity, and the horsepower of the Cloud. No one guessed five years ago that it would be the lowly app that would glue it all together and unleash the next hypercycle. That the iPad and its imitators would be the fastest growing commercial and industrial – never mind consumer – product was not countenanced. Apple itself, we’re told, was surprised at the nature of the adoption of the iPad and the astronomical growth of apps. (Maybe Steve Jobs knew but didn’t think anyone would believe him in that ancient world before the dawn of the iPhone.)

Economists have not yet assimilated what the app era means. They’ve analyzed the productivity gains from the era when Microsoft and the like brought distributed computing to markets and displaced the mainframe software era. To be fair, economic models are backward-built and can’t be forward-looking when it comes to technology. However, some economists seem quite willing to promulgate, again, an end-of-innovation zeitgeist. We’ve seen that movie before.

For one additional window on the future that has already happened, check out Mary Meeker’s latest summary of the state of the Web. You remember Ms. Meeker with her landmark Internet reports during the last hypercycle when she worked at Morgan Stanley before the bubble burst contemporaneous with Y2K. Now at Silicon Valley’s Kleiner Perkins, Meeker was one of the few ’touts’ of the last tech bubble that got it right, and is still getting it right.

To appreciate the character of the future we are entering, permit an analogy with the automobile, acknowledging the inherent imprecision in any analogy. The app is what you drive. Raw data is collected or created and stored somewhere, then processed/refined, and delivered so you can drive freely, and with your own control, direction and convenience.

For a car, of course you need raw crude oil, and then refineries to make gasoline and transportation networks to deliver it. But it is the car that changed the world, not the upstream industry, which of course expanded enormously to fuel the revolution. The car created the astonishing array of changes in the downstream economy from fast food to suburbs, from the culture of dating to the mobility of the workforce, and much more. The insatiable appetite for cars arrived once they became really useful, not just affordable, but also safe, easy to operate, and affordable. Useful enough for English majors to drive, not just mechanics. Read history. We take them for granted a century later, but people knew back in 1912 that cars were destined to be transformative.

It’s not so much that the personal transportation revolution destroyed old industries (although it did). The magic of the rise of the car was in the creation of entire industries, businesses, services and social behaviors. Between 1910 and 1920, the number of cars on the road rose from 500 thousand to 5 million. By 1950 there were over 70 million cars in America, and the world changed. (For the record, 200 million registered today.)

Apps and cars aren’t the same of course. The growth rate in apps, even though they too are manufactured products, is moving at a blazingly faster pace. And while cars were ’just’ about transportation, they did impact nearly everything. Apps, on the other hand, start out being about everything. For the app economy, it’s equivalent to the year 1920 of the car economy. App, app, and away.

Original Source:



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