Thursday, January 18, 2007

Early Indications December 2006: How'd We Do?

[distributed 12/13/06]

In January of this year, we published eight predictions. At this
point, the score is six hits, an incomplete, and a slight miss.
Overall, it was a pretty good year for technology and innovation, with
a variety of new wireless technologies getting closer to market, a
breakout year for web video, and an ambitious set of web services from
Amazon (including everything
from artificial intelligence to warehouse shelf space).

On the mis-step front, the litany of privacy breaches became longer
and louder, with a stolen laptop costing the U.S. Veteran's
Administration a projected $160 million dollars had it not been found.
In the midst of absorbing losses in the hundreds of millions of
dollars because of defective batteries, Sony launched an expensive,
powerful gaming platform that it couldn't supply in holiday
quantities. The "netroot" bloggers made a lot of noise but in the end
did not get their U.S. Senate candidate elected.

1) The second half of the year will be stronger than the first half in
the PC sector

Score: Hit
Even though Microsoft's Vista operating system has yet to generate any
PC sales, because consumers can't yet buy it and enterprises will have
to certify their existing applications on the new platform, this
prediction did in fact come to pass: at HP, the Personal Systems
group saw revenues for the three months ending October 31 rise 13%
over the quarter ending July 31. At Dell, only preliminary numbers
for the quarter ending November 3 have been reported, so it's
difficult to say with certainty what's going on.

2) "Services" will become the corporate IT buzzword outside IT

Score: Hit
SAP recently announced that its core positioning will focus on what it
calls Enterprise SOA or ESA, with half of R&D spending committed to
creating up to 30,000 SOA-driven business processes. Accenture is
spending an announced$450 million on SOA, HP $500 million, and IBM a
total of $1 billion on SOA over the coming years. Oracle, BEA, Sun,
and most software vendors apart from Microsoft, which is not branding
services so aggressively, are joining the gold rush.

3)Google will launch a breakthrough business outside web advertising

Score: Hit
Counting only their distribution deal with BSkyB, the YouTube
acquisition, the launch of the core of an online office suite (Docs
and Spreadsheets), and the challenge to PayPal implied by Google
Checkout, it was a big year for Google. Going forward, the company is
joining Amazon, Yahoo, and other search firms in building enormous
data centers to support further expansion of so-called "cloud
computing." George Gilder's recent article on these data centers in
Wired, apart from its purple prose, is required reading, particularly
for its take on the electricity consumption issues:

4) HDTV will have collateral effects

Score: Hit
According to market researchers DisplaySearch, HDTV displays broke
through and accounted for over half of the North America TV market in
2006. Price drops continue, even in the face of such strong demand,
in part because the big producers see additional production capacity
coming on line in the near future. Verizon's bet on fiber to the
home, meanwhile, may be concerning the cable TV operators, whose
industry lab was reported this summer to have questioned the wisdom of
long-term investment in a coaxial infrastructure with strict, and low,
limits on HD traffic.

5) The relentless reinvention of business markets by the Internet and
digitization will continue

Score: Hit
"Who might be next? Television is my best guess." With YouTube and
BitTorrent both getting content distribution deals from major players,
and with cellular continuing its push toward video, the motion picture
and other video incumbents are confronting a dramatically different
landscape. A big story here was ESPN pulling its cellular phone
service after only about six months.

6) The quiet march of robot progress will continue

Score: Incomplete
The march was so quiet I couldn't hear it. There was no high-profile
story on par with 2005's DARPA challenge, which will be re-run in 2007
in simulated urban traffic, rather than last year's open albeit
obstacle-strewn desert environment.

7) Sensors and other location-awareness technologies will make the
news for an unexpected consequence

Score: Miss
RFID in the supply chain is finally providing suppliers (as opposed to
retailers like
WalMart) with a compelling cost justification: promotion
effectiveness. Think about a consumer products manufacturer (a
fictional example would be a battery company before Halloween): if I
deploy an expensive, time-sensitive end cap or other display, I want
to know if a chain's thousands of stores are in fact displaying my
promotional material and inventory. If they aren't on the sales
floor, customers could be confronted with stockouts and/or I must take
returns of seasonally-specific merchandise, such as Halloween
packaging in November. Apart from that realization, the toll bridges,
automated thermostats, automobile black boxes, and their kin
apparently worked well enough not to draw notice. RFID-equipped
passports are concerning industry observers who see how easy it is to
read them from a distance, and a company that sells tags for human
implantation (with readers being given away to emergency departments)
is raising fears, but neither was a major story.

8) The developing world will once again make headlines for innovation
and not just cheaper
production costs

Score: Hit
A Nobel Prize for microfinancing in Bangladesh, Brazil's leadership in
ethanol, and Korea's
launching a mobile WiMax service years ahead of the U.S. or Europe all
seem to count here. It's noteworthy that two of these three examples
involve organizational rather than primarily industrial innovation.

Also in January, we discussed six macro trends, and several of them
certainly made an impact:

Climate change: Just this week, a preprint of an article in
Geophysical Research Letters suggested that the Arctic could be open
water by 2040, maybe sooner.

Avian flu: Nothing on the epidemic front so far

Unstable energy prices: Big news here, especially mid-summer

The end of the bi-polar world: Russia, Venezuela, the Middle East,
North Korea and Darfur certainly proved that regional instability can
reach far and wide.

Decreased faith in government and authority: The U.S. midterm
elections, a wide lack of confidence in the United Nations, and the
privatization of large-scale humanitarian efforts by everyone from the
Gates Foundation to Rick Warren suggest this trend is continuing.

Increased evidence of class conflict: "Conflict" may be the wrong
word, because there was less overt class-related rhetoric this year
than in Katrina or the Paris riots. But the word "separation" still
applies, with significant implications for the middle class in
industrialized nations: in 2005, the average CEO of a U.S. company
with more than $1 billion in revenues made 262 times what the average
worker was paid, the second-highest multiple on record. The average
income of the top 126 hedge fund managers this year, according to
Barrons, was $363 million, up 45% over the previous year. At Goldman
Sachs, meanwhile, the mean average compensation for all 26,000
employees, from administrative assistants to top management, is
$622,000 in 2006.

On that note, happy holidays. Watch for the 2007 predictions in January.