Dealing with Disruption
As regulators start to fundamentally review their remits, Chris Chapman, the incoming president of the IIC and chair of Australia’s ACMA, details the extent of digital disruption and possible regulatory response, in this two-part article.
Over the past ten years since the Australian Communications and Media Authority (ACMA) was created we have most certainly observed significant changes occurring in Australia’s communications and media markets – in citizens’ expectations of the way they interact with digital technologies, and changes in the type and scale of risks and harms experienced by all stakeholders – industry operators and citizens. The original challenge arising from the digitisation of content and carriage has been further compounded by the emergence of IP-enabled communications and content over the past decade.
These changes have been documented by our various tracking studies of market and technology developments and longitudinal studies of the Australian community’s changing media and communications practices. We drew this work together in a strategic framework, presented in a recent paper.1 For regulators to more fully address the challenges of digital disruption a different regulatory focus is likely to be needed. It must necessarily include a discussion about the breadth of industry and social activity that should form the focus of any revised regulatory framework or remit.
So what are the deep currents of change that confront us? When Thomas Friedman updated his book, The World is Flat: A brief history of the twenty-first century, he recounted how many of the things that were informing current debate had not been thought of in 2005 – the date of the first edition and the year the ACMA was established. He noted that:
- Facebook cannot be found under ‘F’ in the index of the first edition of the book
- Twitter was then a sound
- Cloud was something found in the sky
- 4G was a parking space
- An application was something you sent to college
- LinkedIn was a prison
- Skype was a typo.
In a 2015 tribute to Alan Rusbridger, who had for 20 years edited the UK newspaper, the Guardian, Emily Bell observed that: “Twenty years ago was perhaps one of the most significant phases in modern communications as consumer access to the internet was in its infancy. Microsoft was just launching its first web browser (Internet Explorer), the global penetration rate of mobile phone ownership was 1%, and the world’s largest internet company was Netscape – valued at more than a whopping $5bn. Amazon was starting life as a bookseller in Jeff Bezos’s garage, and Larry Page had just enrolled in the Stanford PhD programme where he would bump into fellow student Sergey Brin and write a thesis paper which became Google.”
And of course, all this was brilliantly anticipated by that telecoms genius, Nikola Tesla, in 1926: “When wireless is perfectly applied the whole earth will be converted into a huge brain, which in fact it is, all things being particles of a real and rhythmic whole. We shall be able to communicate with one another instantly, irrespective of distance. Not only this, but through television and telephony we shall see and hear one another as perfectly as though we were face to face, despite intervening distances of thousands of miles; and the instruments through which we shall be able to do this will be amazingly simple compared with our present telephone. A man will be able to carry one in his vest pocket.”
The contemporary view is, for me anyway, neatly summed up by veteran Australian media and ICT observer, Tom Burton: “The digital era is still a work in progress, but what we are seeing play out is the combination of ubiquitous connectivity, powerful intelligent devices and an extraordinary web of software, driving applications and services. There has already been rapid and major disruption across the economy and history suggests that as connectivity improves and devices and software become even more powerful and intelligent, our world will continue to fundamentally change, in ways it is hard to predict. And if the pattern of previous disruptive technologies is repeated, this change will almost certainly be far more fundamental and profound than simply a new way of working.”
To put it then at its most conservative, the pace of technological change refuses to slacken. In the past year or so alone we have seen the onrushing tide of innovation bring us the Apple Watch and other wearables, virtual reality viewers, 3-D printers that are also scanners, drones, the ultra-high-definition format (4K) for TV and gaming, very high-resolution screens on phones, and faster mobile networks. You can now buy a fast, high-end computer that fits in your pocket – the list goes on.
nature Of technOlOgical change
For a more detailed look, the Pew Research Center (as part of a sustained effort throughout 2014 to mark the 25th anniversary of the creation of the web) looked at the future of the internet, the web and other digital activities. It canvassed 2,558 experts and technology builders about where we will stand by the year 2025 and found striking patterns in their predictions.3 To a notable extent, these experts agree on the technology change that lies ahead, even though they disagree about its ramifications.
Most believe there will be:
- A global, immersive, invisible, ambient networked computing environment built through the continued proliferation of smart sensors, cameras, software, databases and massive data centres in a world-spanning information fabric, the internet of things (IoT)
- ‘Augmented reality’ enhancements to real world displays that people perceive through the use of portable/wearable/implantable technologies
- Disruption of business models established in the 20th century (notably in finance, entertainment, publishers, education)
- Tagging, databasing, and intelligent analytical mapping of the physical and social realms.
The IoT is indeed currently a hot topic and deservedly so. It is not a novel concept; machines have been talking to machines at least since the start of factory automation and SCADA4 protocols. However, there is now a palpable sense that we are on the threshold of another step change – that the environment of ubiquitous devices and constant connectivity is about to spread from the widely taken-for-granted smartphone world into the ambient world of devices and objects that surround us. And, of course, such a development potentially gives rise to a huge number of devices, colossal numbers of connections and generates stupendous amounts of data, much of it to be collected, analysed and further utilised.
From my own perspective, I suspect it will be a considerable while before we witness the massive form of the IoT. There are doubtless a number of things to be resolved before such a vision fully comes to pass. Standards must be settled, spectrum needs to be available, citizen and consumer worries and harms must be allayed and addressed, and market economics settled.
“Just because it can be connected, should it or must it be connected?” one might ask. For the ACMA, as one of the relevant regulators in the Australian context, and at this stage in the development of such a potentially transformative technology, the most sensible thing we can do is to play a facilitative role so that the market can find and test its own propositions for this space.
"We must remain enagaged but resist the temptation to indulge in regulatory activism."
In other words, to either resolve impediments to development of potential uses where we can, or to stay out of the way, by forbearing to weigh in with regulatory interventions where they may be feasible, but will probably be of marginal utility or, indeed, be counterproductive. Which is not to say that we should abandon our remit to protect the public interest where it may be materially threatened. To detect and differentiate such eventualities we must therefore remain engaged and watchful, but resist the temptation to indulge in regulatory activism.
Put another way, one might ask, “What might be the ‘killer app’ for the IoT?” As a writer in Quartz put it: “The internet of things’s disruptive potential has been deathly slow to realise, in large part because the commercial landscape is not ready for it. Much of the delay resides in linking the vast islands of digital data from sensors and applications to an information highway, primarily wireless technologies. Those of us involved with intelligent industrial products working toward integration for IoT opportunities repeatedly face what we term ‘last’ challenges … for example, ‘last mile’ deployments to extend cellular infrastructure, the ‘last hundred metres’ to connect sites, ‘last rooms’ referring to wireless dead spots and even the ‘last square mile’ when investigating satellite coverage of oceans and deserts. In each case, the world lacks ready solutions to make that ‘last link’.”
In the home automation field, for example, a developer may sort through as many as a dozen alternatives to complete their ‘last’ links, including prominent alternatives such as WiFi, Bluetooth or LTE, to less familiar ones like ZigBee or Z-Wave. But with little incentive to innovate these last links, each of the currently available options typically falls short on at least some dimension. And in addition to this home networking issue, we can find comparisons or perhaps early examples of trying to network things in the evolution of smartcards and various payment systems such as NFC (near field communications).
Nevertheless, I certainly acknowledge that the market will keep throwing up propositions for consumers and industry (and perhaps the regulator) to test. One such proposition to which I give some credibility is the notion of ‘My internet of things’. In this scenario, the smartphone acts as the gateway to the collection of connected devices related to an individual, giving them access and appropriate control of devices in their personal ‘ecosystem’.
Smartphones have the apps and computing power to resolve different protocols and pull together data from ‘the (multiple) things’ of different vendors in the device of the consumer, and perhaps then to share relevant data with selected intermediaries on a permission basis. To all intents and purposes, the smartphone user is then running their own IoT. And for this, mobile broadband will be an essential ingredient, as well as various other modes of wireless communication.
fOrces Of disruptiOn
The IoT and other developments such as those chronicled above by Pew Research are unleashing what is often discussed as ‘forces of disruption’. Catherine Livingstone, chair of Telstra, Australia’s major telco, put it this way in a recent address: “At the heart of this disruption is connectivity. Mass connectivity. This connectivity has enabled human generated data, and now machine generated data, to flood through our global networks of fibre and copper. Combined with orders of magnitude increases in computing power, what and who is possible to know is almost limitless. And in real time. We thought that the connectivity enabled in the mid-1990s by the fixed line internet and browser technology was disruptive; that was before 2007, when the mobile internet became a reality with the first smartphone. But that is nothing compared with the disruption we will see with the advent of the internet of things.”
There are a number of other ingredients feeding into the mix headlined by the IoT – cloud computing, ‘deep learning’ algorithms fed by big data, the smart devices in the hands of citizens and the connectivity platforms which support disruptive business models currently storming many established industries.
Research firm Frost & Sullivan put it this way: “Convergence and connectivity is disrupting, transforming and collapsing industries, redefining the future of business and how executives will manage companies in the future. The interplay between cloud computing, mobile technology, big data and the internet of things is driving the surge in digital transformation and rapidly accelerating the pace of connectivity and convergence across all industries, radically changing lives; transforming the way we work, relax, learn and manage our health.”
A news item about Greg Baxter (the Australian technologist who is leading Citigroup in its digital battle) caught my eye. Because, in his view, artificial intelligence, robotics, big data, and exchanges like Bitcoin and peer-to-peer lenders, are all emerging as serious prospects, he wanted to capture the serious attention of senior Wall Street colleagues. “So he presented Citi executives in New York with a financial analysis of incumbent business models in the music, video, travel and media industries that had been turned upside down by digital disruption.” Presumably so that the bank’s approach to risk is much better attuned.
This is a space the ACMA knows well, and a pace it is also adjusting to. For the past decade, we in the communications and media industries have become almost accustomed to the constantly renewing cycle of technological change underlying the business models of previously well-established industries. By and large, however, these have been the information industries, which have been transformed into shapes and forms that are often essentially unrecognisable as their former selves. I am thinking of the obvious examples of encyclopaedias, recorded music, book retailing, voice telephony, newspapers. BrandData, a daily ranking index services, has reported that Australia’s top six bloggers now have a larger combined audience than the highest-selling magazine, newspaper and TV programme collectively.
Streaming video (which has made a somewhat belated appearance in Australia with the recent entry of Netflix) is putting significant pressure on free-to-air and subscription broadcast television. The then Channel Ten CEO, Hamish McLennan, commented on the challenge for local broadcasters from tech-media startups and offshore online video competitors: “The vast majority of all video consumed today on any device is broadcast quality content. We need to look at redefining the industry. The headlines are so wildly exaggerated about the death of television or that TV is dying. It’s just not the case. People are watching as much TV as they have ever done but they’re doing it on many screens and devices so it just opens up the opportunity to redefine TV.” He noted that to justify their valuations, the new media outfits are going after global scale – and local publishers and media need to prepare for this. He said, “Our competitive set is not a seven, nine and ten play anymore. We have to compete with overseas technology companies, so our universe is much larger than ever before.”
We are now familiar with over the top (OTT) services such as streaming video and voice over IP telephony and how they are disrupting or have disrupted established players such as broadcasters and telcos. I have found it interesting how smart devices in consumers’ hands can allow them to step completely out of the established communications system. For example, ‘mesh networking’ allows users to communicate wirelessly by bouncing a message from one phone equipped with FireChat (within 210 feet of them) to another via WiFi or Bluetooth antennas and so allows them to send and receive text messages entirely without mobile data or the internet. The encrypted message then keeps bouncing from phone to phone without touching carrier or ISP networks, thus avoiding costs and usual interception methods, until it reaches the intended recipient. The creators of the FireChat app estimate that as long as 5% of a city’s population has it, messages can be delivered in around ten minutes. While originally designed for people to get in touch with each other at crowded events, FireChat apparently became hugely popular in Iraq last year, after the country faced internet use restrictions, and was an integral part of the 2014 Hong Kong and 2015 Ecuadorian protests.
At a micro-level, this confirms the paradox in the contemporary world of networks that the distinctions between layers are not quite the ‘bright’ lines we may have optimistically ascribed to them five or so years ago. While the notion of layers is useful to aid our navigation and understanding of the networked world, they are not themselves new, inviolate touchstones. Today’s network layers (let alone how those in the future seem to be shaping) are not, as the engineering origin of the concept might suggest, neat and clearly delineated functional constructs. They are instead increasingly permeable, interconnected and virtualised, meaning that much of what functions as ‘infrastructure’ is software defined, and many content layer applications can deliver an ‘infrastructure-like’ connection or service.
impact On the ‘real wOrld’
Broadly speaking, the disruptive changes of digital transformation to date have involved industries of the ‘virtual’ world of media and communication, where information is the key ingredient. Certainly over the past few decades ICT capability and innovation (mainframes, then networks of smaller computers and the internet) have transformed other more ‘physical’ established businesses. However, while of course banking, insurance, manufacturing and mining have all been changed, generally they have not been to date fundamentally disrupted and remain recognisable as banks, insurers, factories and mines.
My proposition is that we are now arriving at the point of witnessing digital disruption bringing irreversible effects into the ‘real’ world, the world of banking, insurance, manufacturing and perhaps even mining.
Ray Kurzweil, a pioneer of computer science, likes to talk of “the second half of the chess board”. On the second half of the board not only has the cumulative effect of innovations become large, but each new iteration of innovation delivers a technological jolt as powerful as all previous rounds combined (it’s from the old fable about doubling grains on each successive square).
As Kai Riemer, associate professor at the Digital Disruption Research Group at Sydney University Business School, puts it: “Disruption is much more of a profound thing than just the launch of a new app or a new technology coming into market… Disruptive change is path-breaking change. It is not a linear extrapolation of the past, it is not a change that we could predict.”
"Each iteration of innovation delivers a jolt as powerful as all previous rounds combined."
Perhaps some of the disruptions we currently see around us are the signs that the ‘real world’ jolts from ICT innovation in a real sense have only just started. Tom Goodwin is clearly onto something when he notes that: “Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.”
The new breed of companies are the fastest- growing in history. Uber, Instacart, Alibaba, Airbnb, Seamless, Twitter, WhatsApp, Facebook, Google: These companies are indescribably thin layers that sit on top of the vast supply systems of others (where the costs are) and interface with a huge number of people (where the money is). This gives rise to what some have termed ‘Uber-isation’, a phenomenon that Kai Riemer (while he does not use the term) describes thus: “Uber, Airbnb, none of them own the actual assets that deliver the service, but they are disruptive because they are better at orchestrating the information flow, therefore reallocating risk and suppliers and appropriating rent from this game. They turn physical into digital industries.”
The value is in the software interface, not the products, or as Catherine Livingstone suggested, in the connections and connectivity. An illustration is Aerosolve, a tool used by Airbnb to help people figure out the best price for their Airbnb rooms and apartments. It synthesises a variety of factors and data items to suggest a nightly room charge and uses ‘machine learning’ algorithms to get smarter over time. Airbnb has released Aerosolve as a free download for developers to build into their own apps, presumably with the aim of connecting even more customers, and therefore consolidating Airbnb’s position in the market.
This fundamental shift and threat to established business models is again vividly illustrated in the world of finance. JP Morgan CEO, Jamie Dimon, warned in his annual letter to shareholders that startups are coming for Wall Street, innovating and creating efficiency in areas that are important to companies like his bank, particularly in lending and payments. And, I would add, you can insert the traditional industry of your choice in place of ‘banking’.
Michael Corbat (Citibank CEO) presented at the GSMA Mobile World Congress in 2014. He spoke about ‘Digitisation – the transformative power of technological innovations, large and small, and the countless efficiencies they create’ and shared the perspective that, “In many ways, we see ourselves as a technology company with a banking licence.”
Mike Smith, CEO of ANZ, one of Australia’s ‘big four’ banks, used this consumer economy reference point as he explained the huge problem banks face from tech disruption, in terms of how the digital age is reshaping consumer expectations: "I have to look at what Alibaba is doing? What is Google doing? What is Amazon doing? Because that customer experience they’re creating – people are going to ask, ‘Why can’t you do that as a bank?’ And the problem banks have got is that their IT systems are designed around an accounting system. Core banking is all about an accounting system. And we have to move to a customer-driven system, a behaviour driven system."
questiOn Of trust
PwC defines the sharing economy as “an emergent ecosystem that monetises underutilised assets or forgoes the purchase of those assets altogether, in favour of borrowing, renting or serving up micro-skills in exchange for access or money. It is a system of opportunism built around trust, collaboration, and on-demand goods and services.”
PwC observes the role of social media, mobile, analytics and cloud computing in contributing to lower entry barriers to the sharing business model, suggesting that 19% of the US adult population has tried the sharing economy firsthand. Of considerable interest in these sharing economy developments is the role of trust and reputation.
Rachel Botsman, a global expert on the power of collaboration and sharing through technology, in a piece called ‘Welcome to the new reputation economy’, observes that: “An aggregated online reputation having a real-world value holds enormous potential for sectors where trust is fractured: banking; e-commerce, where value is exponentially increased by knowing who someone really is; peer-to-peer marketplaces, where a high degree of trust is required between strangers; and where a traditional approach based on disjointed information sources is currently inefficient, such as recruiting."
In the case of many current disruptive business models, she notes that people are not just sharing assets; they’re sharing their knowledge and experiences of the services (and of each other) using ratings and reviews, which are often regarded as more trustworthy than traditional marketing, the corporate press release, or the advice of the broker.
This is consistent with a PwC report that notes: “… if trust in individuals and institutions is waning or at best holding steady, faith in the aggregate is growing. More and more, peer-review systems are becoming arbiters of quality. According to Nielsen’s 2012 Global Trust in Advertising Survey, 92% of consumers in 56 different countries said they trusted word-of-mouth or recommendations from their friends and family above all other forms of advertising.”
Chris Noone, in an article entitled ‘Why the sharing economy is doomed without trust’. provides a useful outline of the marketplace’s role in the development and maintenance of trust in an online sharing environment. He suggests: “Once people begin interacting with each other, the community takes over, by adding feedback on their experience with other members. Feedback mechanisms promote good behaviour by the community’s members and ensures that, if they are trusted, they can continue being involved with the community.”
Perhaps even more interesting in this context, from the perspective of the regulator, is PwC’s finding that: “In the US today, 64% of consumers we surveyed say that in the sharing economy, peer regulation is more important than government regulation.” Might not that observation give us, as regulators, some pause for thought?
In the second part of this article I will discuss further the extent of digital disruption, the opportunities to pave the way in areas such as spectrum, and generally how regulators such as the ACMA can meet the challenge of crafting and implementing tailor-made, fit-for- purpose, increasingly light-touch interventions that can move in timeframes to match the pace with which the regulated (and increasingly, the non-regulated) industries are moving.