Early Indications November 2008: Grading the Predictions

In the spirit of accountability, how did this year's reality fit prior predictions?

A) 2008 Predictions

Here's what I said in January: "Somewhere in the next 12 to 18 months, I expect to see major news unfold in some combination of the following five domains."

Domain 1) The Fragility of Democracies

Grade: Miss/incomplete

Apart from a near triumph of a convicted felon in a Senate race, the U.S. election ran smoothly: no major electronic voting irregularities, no hanging chads, no trip to the Supreme Court for vote-counting. Instead, looking back on the election cycle, the Obama campaign's skillful use of social media to raise vast sums of money, mobilize an army of volunteers, and get out the vote proved to be a milestone in the technology curve. Elsewhere, democracies remain fragile, and political instability could surface in the wake of economic turbulence. India and Pakistan both show signals of unrest, as do parts of Africa and South America. Food riots (see below) could precipitate further troubles.

Domain 2) Life in the Food Chain

Grade: Hit

When I said that "overall, U.S. food prices increased dramatically last year, and there's no reason to think the trend will reverse," I was making the same mistake the bond ratings agencies and others made when they assumed U.S. house prices could only go up. Commodity price movement is on the downswing for the moment, but several factors, not least of them global demand, could reverse the trend at any time. Food prices were in fact major news in 2008, as were "slow foods" and "buy local" movements. A big question going forward: as consumer spending responds to rising unemployment and loss of both residential and stock market equity, will people keep paying the premium for organic foods? Early returns (via the research firm Mintel) suggest not: 48% of UK organic shoppers say they will reduce or give up buying organic food in the next year.

Domain 3) Cheap Computing

Grade: Hit

Prediction: "I have no idea how it will play out, but we will see some interesting (both scary and exciting) developments as a result of the increase in low-cost options. This is not to say that paid package software will disappear, but having a growing set of inexpensive options will certainly change the industry, and the market."

Cloud computing became a powerful buzzword, meriting a 14-page special report in The Economist last month. PC demand continues to soften, whereas mobile platform growth has remained vigorous. Last week's launch of the new Blackberry will bear watching, and AT&T continues to see wireless market share movement based on the iPhone. Some U.S. customers are abandoning not only landline voice but also wired broadband, consolidating on the mobile platform now that form factor, usability, and wireless bandwidth have all crossed some threshold for wide adoption.

Domain 4) Organizing Augmentation

Grade: Incomplete

Prediction: "Every year we see more computing done outside 'computers.' . . . The point here is that just as there's a large category of enterprise software that we use to run other software, we'll soon need digital assistance to manage our digital assistance."

This shouldn't have been a one-year prediction. I still think it will pan out, but not in this time horizon.

Domain 5) Consequences of Visible Social Networks

Grade: Hit

Prediction: "As more of us can see and organize who we know, and the people they know, expect to see some unexpected outcomes. . . .we're already seeing changes in demographics. My students have a very different experience of interpersonal connectedness than did their predecessors of just a few years ago."

The Obama campaign capitalized powerfully on viral video, social networking, text messaging, blogging, and online coordination: Internet fund-raising alone allowed the campaign literally to rewrite the electoral playbook. Facebook is becoming a platform in several senses of the word and drives enormous traffic: Alexa ranks it #5, or in other words the #2 non-search site after YouTube. Just behind is Newscorp's MySpace at #7. Hi5, meanwhile, claims to be the #1 social networking site in over 30 countries and supports 37 languages; Alexa rates it as the #17 site overall on the Web, just behind Microsoft's home page. One unexpected consequence of these networks is crime-fighting: to cite a minor but local example, several individuals here in town have been arrested in our version of football hooliganism based on photos and/or videos posted on MySpace et al.

B) Two Older Predictions

1) In September 2005 I wrote a private research report on Microsoft Vista in which I expressed concern that comparisons to Windows 95 were premature. Because Vista failed to give home users new capabilities on par with 95's long filename and CD-ROM support, TCP/IP, modem controls, and other Internet and networking functionality, I predicted that "Vista’s feature set and the competitive environment should ensure that the product represents a single or more likely a double for Microsoft, but more certainly not a home run." I think it's safe to say this has in fact been the case as Microsoft has seen adoption lag predictions.

In the consumer domain, the contrast of four different Vista advertising campaigns this year to the hit-the-ground-running Rolling Stones campaign for 95 could not be more striking. The "Mojave experiment" experiment tried to suggest that Vista was not as bad as people had heard, Jerry Seinfeld lasted less than a month, and the current "I'm a PC" campaign avoids any mention of what Vista actually does. While enterprise purchases drive Microsoft's biggest numbers, even there XP is still controlling disproportionate market share. In addition, Microsoft's own early previews of Windows 7 implicitly acknowledge Vista ranks as less than a world-beater. Finally, the home PC market has changed radically from 13 years ago, as last week's news illustrates: PC Magazine is ceasing print publication after 27 years in business.

2) In April 2007, I hedged my bets on the iPhone, offering reasons for both success or failure. Now that the former outcome can be declared, why did I think the iPhone would succeed in the market?

If the iPhone follows the iPod as a success, it will be because:

-Apple invents a new category of device, learning from previous failures.
Outcome: True

-The user interface transcends anything else in the category not with bells-and-whistles complexity but intuitive simplicity.
Outcome: True

-Apple has once again used superior industrial design, elevated to the level of art, to create unsurpassed "cool" factor in a category.
Outcome: True

-As venture capitalist John Doerr recently noted, Apple has a vast army of users trained to synch their device with a computer. It's an installed base of user behavior that could give the iPhone a jump-start in adoption.
Outcome: True

-The iPhone captures momentum amidst industry disruption. As mobile broadband emerges from competing standards and platforms, the iPhone could dominate a multi-radio niche just at the moment that heterogeneous coverage becomes a reality.
Outcome: True

-The demographics align: the price points, through whatever mechanism, drive adoption in both the niche knowledge-worker and technology-as-jewelry segments along with 20-somethings who replaced landline phones with mobiles and may augment PCs with a tablet-phone-music player.
Outcome: Incomplete

-The beautiful device is powered by a "killer application."
Outcome: False, as the range of applications rather than the power of any one appears to be more compelling.

-The iPhone, rather than being a phone, is treated by enterprise IT shops as a Unix terminal.
Outcome: False. The enterprise market is not driving nearly as much uptake as personal purchases.

C) What I wish I'd have seen:

Although I did say in January that "the world has become more nonlinear: when weird things happen, they affect more people and move faster than such events in the past," the reach of financial mismanagement and shared exposure has stunned essentially everyone. Rather than Avian flu in the physical domain, we're coping with derivative trauma in the financial.

Globalization is leveling some playing fields more than others, but in terms of acquisitions, the sale of first-world assets to non-first-world investors is happening faster than many might have thought. Consider that InBev (Belgium-Brazil) bought Anheuser-Busch in July, Tata Motors (India) bought Jaguar in June, numerous sovereign-wealth funds hold substantial Western equity, Lenovo (China) bought IBM's PC business in 2005, and GE Plastics is now owned by a Saudi Arabian firm. Combine such cross-border M&A with the collapse of U.S. financial-services firms such as Bear Stearns, Merrill Lynch, and Lehman Brothers, and the instability in the auto industry, and we find that very few companies can be said to be acquisition-proof.

While the music industry appears to have stopped suing its customers for downloading music, piracy -- of the high-seas variety -- is back in the news. The impact of the Somali ship-ransom industry (a $150 million effort) will bear watching: the Indian navy recently appeared to sink a pirate vessel, and the Russian navy is sending more warships to the Gulf of Aden. With the U.S. already active, the pirates appear to have mobilized a rare and perhaps unprecedented coalition of protective forces.

The almost instantaneous shift from worries about inflation to concerns about deflation characterizes the wildly unstable year we've witnessed. Consider:

-The Obama campaign promised to levy a windfall profits tax on the oil company, yet in the current climate, investors, employees, and governments would most likely be delighted to see any corporations capable of prospering. Verizon and AT&T appear to be recession-resistant in their mobile and cable units, and HP posted Q3 earnings that reflect 5% year-over-year organic growth, but financial services, manufacturing, most of the tech sector, housing, travel, and retail (outside Walmart and some dollar stores) all range from disastrous to troubled.

-Crude oil prices have fallen nearly $100 per barrel -- $100 per barrel! -- in just over 100 days.

-The U.S. dollar has rapidly strengthened, rising from nearly $1.60 per Euro to under $1.25 in just over 3 months (July 15 to October 27). Historically, dollars and oil have of course moved in close relation to each other, but I could not find any convincing explanation of causation one way or the other, or of a third factor that might be driving both currency appreciation and lower commodity prices as dependent variables.

What could possibly follow this crazy year? Check back next month for 2009 predictions.