London – Here’s a prediction. The biggest changes to our lives over the next five years will have nothing to do with politics in Britain and all to do with technology in America.
And not just America but one small part of it: San Francisco and northern California.
If that seems overly radical, consider this. In the past few days we have had Google hire Ruth Porat, the former chief financial officer of Morgan Stanley, to – as Larry Page put it – help the company “invest in a thoughtful, disciplined way in our next generation of big bets”. We have had Facebook announce, among other things, that it will include a payments system on its Messenger app, in effect by-passing the banks. We are in the middle of the roll-out of the Apple watch with its string of innovative features. And just yesterday there was a tweet from Elon Musk, head of Tesla, about a new product line – not a car – to be unveiled tomorrow.
That is just a superficial snapshot of what some of the giants of the tech world are doing. Beneath the radar are thousands of start-up companies, all trying to find new ways of using what are now established technologies to fulfil our needs and desires. The market will decide whether they succeed, for we consumers will choose what we want. If there is no market, however elegant the new product or service is, it will fail. Put it this way: we vote rather ineffectively in elections for what politicians think we want, but we vote brutally and directly with our money for the goods and services we buy in this new and surprising global marketplace.
There is so much happening that it is hard to pick the signals from the noise, but I find it helpful to think of it under three heads: the top-down innovations from the giants; the bottom-up churn of new apps from the start-ups; and the empowering of customers that technology facilitates.
The fascinating thing about the US tech aristocracy is that it is still very hungry. When British entrepreneurs have made their couple of hundred million they relax. They join the board of the opera, get their peerages, buy an estate. This is not happening at Google, or Facebook, or Twitter. These companies are looking beyond their traditional markets, using their consumer base and their wealth to revolutionise other services.
This partly reflects a shift within the US from East Coast to West. Old power is Wall Street; new power is the Bay Area. But it also reflects underperformance by traditional finance. Traditional financial services are too expensive and too clunky. Their customers, and that is evident here too, don’t like banks. One way forward may well simply be to bypass banks, as the rise of peer-to-peer lending shows. But that is tricky, in that no one knows what is guaranteed by whom if things go belly up. Besides, the contenders are tiny. I can’t see Google becoming a bank, for it would be mad to do so.
But if it can use its vast information base to enable the functions of finance – transferring money, providing a store of value, extending credit etc – without a banking intermediary, then the princes of Wall Street should be frightened indeed.
In a way this is nothing new. Innovation often comes from new enterprises. Aircraft and motorcars were pioneered not by the great shipbuilding and railway firms of the 19th century but by maverick engineers in small garages. The mobile phone revolution came not from the fixed-line monopolies but from relatively small enterprises that had made some money in other fields.
The handful of tech giants may well revolutionise other goods and services and I think finance looks particularly vulnerable. But if I had to predict where the next clutch of services that will change our lives will come from, it would be from start-ups - many of which are being funded by the giants. More money was invested in start-ups last year, some $50bn, than at any time since the dotcom boom of 2000.
We can have no idea what out of that investment will flourish and what will fade. Actually, the scale of the boom should make us a bit wary. But a handful of innovative companies can change the world even if the investors as a whole lose their shirts. It would be wonderful to be able to have some matrix that enabled investors to pick winners but that is not the way the world works.
It is easier to get our minds round the power of consumers, and the way we use technology to deploy that power, because we all do it. We use TripAdvisor, we check online reviews for products and services, we try to avoid jams on the M6 by Googling to see where they are. We are still learning how to do this effectively and how to recognise when the system is being skewed. We have not yet developed an etiquette of how to make our points effectively, and one of the really depressing aspects of this new freedom of expression is what they tell us about human behaviour. But if you ask whether restaurant standards in the UK are better or worse than they were five years ago, I suggest most people would say they are improved. That must to some extent be down to online reviews.
That leads to a further thought, a relevant one right now. To what extent can new technologies make our lives more satisfying and less frustrating? Some things work wonderfully well. A modern car is extremely reliable and in real terms much cheaper than it was even 10 years ago. The tablet and the smartphone are stunningly capable and really quite cheap.
But other aspects of life are really frustrating and don’t seem to work any better than they used to. Some of these are private sector services, and banking does rank quite low. But many are in the public sector. Could the next government become really good at deploying technology in the way that, say, the best retailers manage to do? Could it use San Francisco genius to raise its game?
The Independent