Global Trend

The Fifth Wave of the Information Revolution Has Begun

The global availability of capital is converging with a number of other trends to pave the way for the final and most important phase of the information revolution. Every technological revolution goes through a series of waves or stages of creative destruction. This is as true for today’s computer-based revolution as it was for those based on the steam engine, or the automobile.

As we’ve discussed in several prior issues of Trends, we expect the next few years to look very much like the Roaring ‘20s build-out of the automobile revolution. The assets built during the dot-com boom, including intellectual capital, software, and fiber-optic networks, will be recycled along with a flood of new investment capital. The build-out phase of the information revolution ? coupled with the pioneering phase of coming revolutions in biotech and nanotech ? will provide big opportunities in equities, just when housing loses its investment appeal.

This capital is not just coming from the sources cited in Trend #1, but from the retirement investments of American Baby Boomers and Xers. Venture capitalists are flush with cash, and so are companies looking for investments.

Cheap computing, infinite bandwidth, and open standards are powering an epic technological transformation that will churn up huge new opportunities ? as well as perils for those who can’t adapt. And it’s going to create as much of a boom as the Internet did in the 1990s, fueling corporate IT spending and spawning new companies at a furious pace.

How did we get here? The information revolution has developed over the past half-century in four waves, roughly one every decade:

- The first wave occurred in the 1960s, when corporations adopted the technology of mainframe computers.
- The second wave hit in the 1970s, when businesses implemented minicomputers.
- The third wave came in the 1980s, when PCs penetrated workplaces and households.
- The fourth wave followed in the 1990s, as the Internet, as well as networking and distributed computing, transformed the world.

As explained in an excellent article by Michael V. Copeland in Business 2.0, each of these four waves of technology unleashed tremendous leaps in productivity, as well as big increases in spending. And just as each wave inspired some companies to greatness, such as IBM, Microsoft, and Google, it washed away other businesses that couldn’t handle the changes, such as Wang and Digital Equipment.

With all of the technologies from the first four waves in place, the conditions are finally right for the fifth wave. This wave is driven by three irresistible forces. These forces are:

Cheap computing devices. These devices are everywhere around us. They’re in PCs, in cell phones, in cars, and in countless products that are increasingly becoming “smart.”

Infinite bandwidth. Wireless broadband access is connecting everyone to everyone and everything else, everywhere, all the time, at increasingly faster speeds.

Open standards. Instead of proprietary software that keeps one system from linking with another, the world’s IT devices, systems, and databases are being opened to seamless communication.

Looked at broadly, the fifth wave is nothing less than the realization of all of the wealth-creating potential that has been built up through the first four waves. The technologies they introduced have matured and become part of everyday life. As in each of the first four waves, the fifth wave will create new opportunities, destroy some seemingly invincible companies, and propel other businesses to the top of their industries. It will also trigger a massive rise in spending on IT by corporations.

Every paradigm shift in technology, from the steam engine to the railroad to the automobile, was built on generations of previous breakthroughs. For example, a pump used in coal-mining, combined with the wheel, produced the steam engine that changed the old paradigm of transportation and launched the Industrial Age.

The fifth wave follows the same historic pattern. It is built on several technologies that are no longer new, but are just now becoming mature and widespread enough to be exploited fully. These technologies include:

- The Internet, which is pen-trating millions of additional households every year.
- Computer hardware and storage, which is becoming smaller, more powerful, and cheaper every year thanks to Moore’s Law.
- Cell phones and other handheld devices, which are advancing so rapidly that they rival desktop PCs in computing power.
- Broadband and wireless technologies, which now move gigabytes of information in an eyeblink.

Furthermore, the open-source movement has created a new mindset, a virtual Renaissance in which thousands of people collaborate to invent, redesign, add on to, and adapt software code to devise new systems. But this is only a part of the new openness. As Business 2.0 points out, businesses like Amazon and Google are also opening their databases and software protocols to their customers and other companies, allowing others to build and market complementary products and services.

What is most unprecedented about this wave is that there are so few limiting factors on its progress. In the previous waves, technological barriers kept entrepreneurs from moving forward. For example, PC makers had to wait for faster chips before they could roll out a truly better product. The difference today is that the technologies, such as the Internet and broadband, have advanced so rapidly that they have outpaced the applications that take advantage of them.

For example, more than 60 million Americans have broadband connections, yet the business models to exploit this channel are still in their infancy. To comprehend how extraordinary this is, think of it this way: It is as if, 100 years ago, the U.S. had built thousands of miles of highways before the first car rolled off the assembly line. Today, the infrastructure for the fifth wave is ready; all we are missing are the products and services to exploit it.

Consequently, Trends editors anticipate a virtually unlimited array of opportunities unfolding as the fifth wave of the information revolution unfolds. Here are six related forecasts for your consideration:

First, dazzling opportunities will emerge as imaginative combinations of technologies make new products and services possible for the first time. For a whole host of opportunities, the technologies already exist; all that’s needed is the imagination and the innovative mindset to profit from them. Examples are already appearing everywhere. Consider these: It used to be that cell phone users would choose from among the ringtones programmed into the phone. Not anymore. Because today’s cell phones are (1) powerful enough to store more information; and (2) able to access the Internet, the downloadable ringtone has swiftly morphed from a novel idea into a new industry valued at $2 billion a year. Another recent phenomenon, downloadable screensavers for cell phones didn’t exist five years ago; today, they are expected to generate $275 million in annual sales. Yet another invention is the “superbrowser,” represented by Pluck, which scours sites such as Amazon, eBay, Google, and blogs, then combines all of the results on a single page and updates them continuously. Its founders plan to profit from referral fees from Amazon and eBay, and from advertisers who pay to have their sites featured prominently when users search Google for specific words.

Second, fifth-wave devices will make the Internet ubiquitous. This is a direct result of the combined might created by the three forces of cheap computing, infinite bandwidth, and open standards. A case in point: Ambient Devices, launched in 2001. Ambient puts cheap computing power in household products like lamps that change colors to reflect shifts in the stock market or the weather. The devices gather information through a wireless link to the Internet. They rely on open-source code and an existing wireless infrastructure. According to Business 2.0, the company is already profitable, and its sales doubled last year.

Third, ubiquitous computing offers new ways to reverse the decline in marketing effectiveness. The reasons for the freefall in the return on marketing budgets are well known. They include the increasing use of ad-filtering technologies like TiVo; the splintering of the television networks; consumers’ growing resistance to marketing messages; and the multitude of entertainment options. The opportunity to send customized messages to consumers on their cell phones is just waiting to be exploited. Cell phones are equipped with GPS technology, which could enable firms to track users’ locations. This could be combined with electronic funds transfer programs and other technologies that gather data about individuals’ purchase histories. For example, a fast-food company could send a consumer a text message when he passes a restaurant: “Hungry? Press 1 and we’ll have your usual order ready for you at the drive-through in three minutes. Press 2 if you’d like to debit it from your bank account.”

Fourth, the telecom industry will undergo further creative destruction due to the fifth wave. Consider Skype, which is using high bandwidth and cheap computing to provide phone calls over the Internet. The company’s founders launched Skype in 2003, with a minimal investment in marketing, off-the-shelf servers, and a free peer-to-peer program they downloaded from a Web site. Now, two years later, Skype has 41 million registered users, who save as much as 90 percent on long-distance calls on their PCs, cell phones, or traditional telephones.

Fifth, corporations will need to embrace openness in order to avoid getting swept away by the fifth wave. Many businesses will follow the lead of firms like Amazon, which have opened their databases. Already, 65,000 programmers and other businesses have used Amazon’s data to develop new Web sites and services. IBM is among the more established corporations that are getting ready for this transformation. The sale of its PC business allows the company to focus on the future, including open-source platforms. By contrast, Apple Computer and America Online are among the companies that have failed to open their businesses, and Business 2.0 suggests they could be wiped out as the fifth wave advances.

Sixth, the fifth wave will erase many of the advantages that the industry giants have enjoyed, and give entrepreneurs an equal chance to succeed. Because of cheap computing, infinite bandwidth, and open standards, a company doesn’t need millions of dollars to launch a new idea into the marketplace. This will create a tremendous surge in innovation. Because the investments are smaller, the risks are lower, which means that even established companies won’t be as wary of taking chances on radical ideas that can reshape the world as we know it today.

References List :
1. Business 2.0, July 2005, “How to Ride the Fifth Wave,” by Michael V. Copeland and Om Malik. ⓒ Copyright 2005 by Time, Inc. All rights reserved.2. Business 2.0, April 2005, “The Great Giveaway,” by Erik Schonfeld. ⓒ Copyright 2005 by Time, Inc. All rights reserved.3. Business 2.0, July 2005, “How to Ride the Fifth Wave,” by Michael V. Copeland and Om Malik. ⓒ Copyright 2005 by Time, Inc. All rights reserved.4. Business 2.0, April 2005, “The Great Giveaway,” by Erik Schonfeld. ⓒ Copyright 2005 by Time, Inc. All rights reserved.