Leaving the App Economy Alone

February 24, 2012

By Sean Hackbarth, Blogger, U.S. Chamber of Commerce

If you have a smartphone, how many apps do you have on it? Being a tech junky I have over 70 on my iPhone–including 7 different Twitter apps! Each of those apps required people to design, code, and market them. (What, you thought Angry Birds magically appeared?) Those jobs didn’t exist a few years ago, and their numbers are substantial. Michael Mandel, chief economic strategist of the Progressive Policy Institute, concluded in a study that the App Economy has created almost 500,000 jobs since 2007.

One lesson he took from his research was not to burden this growing niche economy with regulations:

The key elements in the App Economy “team”–Apple’s development of the iPhone, Google’s development of Android, the buildout of wireless networks by AT&T, Verizon and other providers–were not the object of heavy government regulation. Government did have a role in unlocking and distributing spectrum and otherwise clearing the underbrush. But no government agency was in charge of supervising the burgeoning App Economy.

Is more regulation needed? Given that App Economy companies are creating jobs and investing in the United States economy during a period of economic weakness, there’s an argument for not messing with success. Government agencies should restrict themselves to ‘light-touch’ regulation of the App Economy unless there’s real problems in the market.

If only regulators treated the rest of the economy like this.

Originally posted on FreeEnterprise.com

The Rise of Big Data

January 17, 2012

By Michael Hendrix, Research Manager

On the eve of 2011, humanity was creating enough data each day to match all of the content in the Library of Congress — 11,461 times over.  With more digital devices than there are humans in existence and internet users being added by the tens of millions with each passing month, data is streaming from all corners of the globe.

The world is floating in a vast river of digital information that is getting faster, deeper, and wider every day.  Data pours forth from handheld phones, social media, credit card purchases, and Wal-Mart warehouses in quantities and rates never seen before in history.  The possibilities found in this river of information are equally endless.  It can open up new markets, help unlock the secrets of science, defy corruption, and much more.  These aims are lofty.  Yet they are feasible through the rise of what’s being called “big data” and all of the analysis, storage, and human capital that goes into managing it.

We must ask what the rising tide of big data means to businesses and individuals alike. While companies can find opportunities, trends, and new approaches in the mass of data, the human element remains critical to understanding, interpreting, and using this information.

Data, Data Everywhere, Nor Any Drop to Sync

Global data flows are so vast that they overwhelm the imagination.  2010 saw the production of over 1,200 exabytes of information.  To put that number into perspective, 1,200 exabytes is roughly equivalent to the storage space of 300 billion DVDs.  Moreover, this number represents a ten-fold increase in data creation over just five years.  It’s projected that in 2015 we will be produce a staggering 7,910 exabytes of data.

In 2011, the world had 2 billion internet users or a little over a quarter of the global population.  What isn’t reflected in that number is the total of mobile-phone subscribers, people who are fast becoming connected to this same data flow.  Bearing in mind that some individuals have multiple subscriptions while others are bundled together, the world now has 4.6 billion mobile phone subscribers.

Turning to the organizational level, a recent McKinsey report found that overall data volume is growing by some 40% per year.  While 75% of all data created in the world stems from individual users, companies have liability for around 80% of it at some point.   In 15 of the U.S. economy’s 17 sectors, companies with more than 1,000 employees store on average over 235 terabytes of data.  At the more extreme end are companies like IBM, which boasts a storage capacity that comes to over 120 petabytes, and tech titan Microsoft, which in just one data storage center can hold up to 6.75 trillion photos.

A Rising Tide of Data

As the tide of data rises, a number of key trends are starting to surface.  The first is the sheer ubiquity and complexity of data.  As noted earlier, raw data is being created at a faster rate and in greater quantities than ever before.  One reason for this is the increase in users and devices.  By 2015, Cisco Systems expects that 40% of the world’s population will have internet access and that the number of network connected devices will quadruple to some 15 billion connections.  These users and devices will also be able to access and create data at greater speeds thanks to the spread of broadband connectivity, which itself is expected to become four times as fast in less than five years.

This deluge of data is also becoming more complex.  Digital information comes in either structured or unstructured form and, according to SAS, upwards of 85% of data is this latter, unsorted type.  While structured data is categorized and sorted within easy reach, unstructured information is often a scattered morass of text-heavy data with few identifying marks.  The reality of data today is more like a bad episode of TLC’s Hoarders than something out of the streamlined, glowing structures seen in Disney’s Tron. As such, there is tremendous potential value in leveraging cluttered data.  To quote The Economist, “Given enough raw data, today’s algorithms and powerful computers can reveal new insights that would previously have remained hidden.”

The second key trend is that this data is far more mobile today than ever before.  It’s not just being stored but shared.  One manifestation is in the realm of social networking.  Up to 65% of Americans use social networking sites such as Facebook and LinkedIn.  Now more than ever, these sites are yet another way to share information and structure e-mail data within a defined network of users.  Another is the ascent of what’s called the “cloud.”  Ubiquitous internet access is allowing for data to be stored in centralized servers — rather than be siloed and scattered — that can be accessed on-demand and readily scaled up.  With the cloud, computing becomes less about the hardware and more of a service to a network of global consumers.  By 2015, upwards of 20% of all data will course through the servers of cloud computing providers.

The private sector was the first realm in which big data arose and so it’s apt that private firms are among the first to be utterly transformed.  As McKinsey put it, data “underpins processes that manage employees; it helps to track purchases and sales; and it offers clues about how customers will behave.”  Not only are industries forming around sorting, analyzing, and applying this data, but it’s forming new data-driven business models.  In short, data is central to how business is done in the 21st century.

So What?

The rise of big data is proving to be profitable, for one thing.  Data analytics, as an example, offers a way to improve productivity by some 0.5 to 1 percent annually in sectors like health care and retailing.  Moreover, a recent study found that data-driven decision-making increases firm performance by 5-6%.  It is quite normal now for an organization to employ “business intelligence” systems to make sense of the data coming from their customers, employees, stores, and warehouses.  As one article in The Wall Street Journal said, “It means fewer hunches and more facts.”

We’re also seeing more organizations be shaped internally by information flows: that is, becoming more collaborative and less hierarchical.  Networked enterprises thrive off of collaborative software that encourages more of a team-based approach centered on open communication flows.  Think of a Silicon Valley firm that eschews cubicles and communicates through instant message.  A survey by McKinsey found a distinct correlation between networked enterprises and increased market share.  Only 3% of the companies they surveyed were “fully networked,” but that cohort is growing fast.

Big data is also impacting external engagement.  Companies are using social media platforms to interact with customers, web-based portals to communicate with suppliers, and overarching systems to coordinate the resulting data flows.  The result is incredibly precise segmentation of customers and the products and services they need.  In this we see that big data need not be for the tech titans alone.  Wal-Mart thrives off of real-time inventory data from across the world in order to properly allocate its products.  For instance, “Wal-Mart discovered in 2004, that along with flashlights, batteries, and other emergency supplies, Pop-Tart sales increased before a predicted hurricane.”  ”Thanks to those insights, trucks filled with toaster pastries and six-packs were soon speeding down Interstate 95 toward Wal-Marts in the path of [Hurricane] Frances. Most of the products that were stocked for the storm sold quickly, the company said.”

On a personal level, we are depositing data in our wake as we move through this river of information. While the privacy concerns are real, this data has also enabled the rise of niche markets and services that become highly personalized in real-time.  Companies using data to more accurately interact with their customers or earn new ones makes their advertising, offers, and service more relevant and specific to the needs of customers.  As Erik Brynjolfsson and Andrew McAfee put it in a recent article in The Atlantic, “Customers are acting as unwitting business consultants for these companies. Our purchases, searches, and online activities are being tracked to improve everything from websites to delivery routes and drug manufacturing.” Ultimately, this enables you and me to capture the gains brought on by lower prices, lifestyle improvements, and niche products.

Staying Afloat in the River of Data

While we can have instant data ready to answer the “what” and the “how” of our world, the “why” and the “so what?” is still up to us to determine and understand.  Analytical talent is not replaced by streams of data or number-crunching machines.  In fact, it makes the insight and intuition of skilled workers that much more valuable.  As McKinsey concludes, “The demand for people with the deep analytical skills in big data (including machine learning and advanced statistical analysis) could outstrip current projections of supply by 50 to 60 percent.”

Companies should work diligently to not drown in this river of data.  There’s much to be said for thinking proactively about the opportunities afforded by an ever greater supply of data and the need for its effective storage, analysis, and integration.  Big data allows companies to more dynamically compete in the marketplace and to capitalize on greater informational awareness.  Just as countries should think holistically about their technology agenda, companies must understand how big data fits into their overall strategy and not separate it from decision makers.  The rise of big data offers a way toward a more prosperous future for economies and businesses.

Big data is more than information.  It is an assembly of our collective experience.  We see ourselves in the stream of data, more aware and complex than ever before.  Our institutions – political, economic, social — are rising on tides of inter-connectivity.   The future of business will in many ways emerge from this river of data and it will be all the more human because of it.

Competition, Innovation Driving Success in Hi-tech Industry – Lessons for U.S. Economic Recovery

September 26, 2011

By Rich Cooper, Vice President, Research & Emerging Issues

There was a time when videogames were relegated to arcades and movie theaters. For 25 cents, a frog hopped through traffic and a giant ape tossed barrels down a ramp. Today’s games look more like Hollywood blockbusters, accessible with a diverse array of hi-tech, wireless devices. Indeed, the videogame industry – currently worth about $25 billion – has changed dramatically, growing five-fold over the last decade, and it is appealing to an audience wider than adolescent boys with a weekly allowance burning a hole in their pocket.

Affordable, broadband-connected computers and wireless devices have upended the gaming industry, spelling challenges for those unable to adapt to the digital world and opportunities for those who can. On September 22, the National Chamber Foundation hosted a program as part of its CEO Leadership Series with a speech from John Riccitiello, Chief Executive Officer of Electronic Arts (EA). Riccitiello offered valuable remarks on what it took for EA – an interactive entertainment software company – to survive and prosper in the tumultuous, dynamic videogame industry.

Congressman Kevin Brady – co-chair of the Congressional Caucus for Competitiveness in Entertainment Technology (E-Tech Caucus) – noted in his introduction to Riccitiello that “Technology is a tough mistress, it can work for you and work against you.”

This is evident, given the upheaval in the newspaper, television and other industries grappling with how to succeed in a changing digital environment. The transformation of the entertainment industry threatens the giants of years past, including major videogame companies. Meanwhile, Riccitiello led EA to nearly $800 million in revenue, and he attributes the company’s success to embracing change and capitalizing on it.

“We put the company back on track by embracing the very thing that threatened us,” said Riccitiello. “We ran straight toward the thing that was threatening our comfortable market share – social networks, smart phones and tablets.”

The tech industry is in a continual cycle of construction, destruction, and reconstruction. With new capabilities and demands, some companies go under, only to be replaced with new companies better able to act and respond to the hi-tech environment. Riccitiello noted that this is not only healthy, it’s fundamental for survival.

“We embrace disruption,” he said, “because with disruption comes the opportunity to be bigger and better.”

Building a Skilled Labor Force

Lessons learned from these experiences offer insight for America’s wider challenge of rebuilding its economy. Companies can prosper by aggressively engaging economic threats, meeting the challenge head on. This kind of success, however, is only achievable if companies have access to the high-skilled workforce needed on challenging projects. With a 9.1 percent unemployment rate in August, much of the country is thinking one thing: jobs, jobs, jobs. The challenge is not simply to put America back to work but to ensure the available workforce holds the skills and knowledge needed to work and compete in emerging and technical industries.

Riccitiello noted three primary points for improving American competitiveness in the global economy:

  1. Give American businesses access to the world’s best talent by offering residency to graduates from U.S. colleges and universities;
  2. Help America’s younger generations acquire the quantitative and STEM (Science, Technology, Engineering and Math) skills that will allow them to compete for the best jobs and satisfy our domestic need for skilled labor; and,
  3. Use U.S. tax policies to attract and create jobs in America.

In the 21st century, U.S. companies compete directly with foreign companies. Our private sector must have access to a workforce armed with the knowledge and skills needed to succeed in a globalized economy. Teaching America’s young people is a priority, but while they study, we also need to build a high-skilled American workforce, part of which includes attracting and retaining talent from abroad.

Riccitiello highlighted Congressman Jeff Flake’s STAPLE Act, a bill that would offer permanent residency to foreign citizens who earn a Ph.D. in science, technology, engineering or mathematics from a U.S. school. In our current economic struggles, this idea and others deserve immediate attention. America’s ability to compete internationally necessitates action.

Immigration and America’s Economic Recovery

To foster the ongoing immigration debate, the National Chamber Foundation will host a half-day Business Horizon Series symposium on September 28, “Immigration & American Competitiveness: The Challenge Ahead.” New York City Mayor Michael Bloomberg will deliver the keynote address, and American business community leaders and public figures will discuss the economic imperative for reforming America’s high-skilled immigration system.

Panelists include:

The program will begin at 8:45 a.m., Wednesday, September 28. You can register in advance online to attend or watch the live feed on the U.S. Chamber website. Please join us for this important discussion as we seek answers and insight to the United States’ immigration challenges.

Where Did the IPO’s Go?

September 20, 2011

By Nick Schulz, NCF Scholar

As someone who conducts analysis on public policy I spend a lot of time looking at academic research.  Few pieces of research have bothered me more than a recent paper by Craig Doidge, G. Andrew Karolyi, and René M. Stulz called “The U.S. Left Behind:  The Rise of IPO Activity Around the World.”

When I first heard of this paper I thought that the finding wasn’t that surprising.  After all, the U.S. has a relatively mature economy, while much of the rest of the world is playing catch up.  As parts of Asia, Latin America and Africa grow rapidly, their share of new public companies should be rising.

As the researchers note, “In the early 1990s, the declining U.S. IPO share was due to the extraordinary growth of IPOs in foreign countries.” So at first blush, this trend is a positive development because it means the rest of the world is growing, too, which is good for everyone.

But there’s more to the story. The researchers also note “that in the 2000s, however, [the declining U.S. IPO share] is due to higher IPO activity abroad combined with lower IPO activity in the U.S.” [emphasis added].

This is the kind of thing that should keep Republicans and Democrats up at night. Clearly we need policymakers to ask why it is the U.S. IPO activity might be declining.  Is it because of excessive regulations in laws such as Sarbanes-Oxley?

And what about immigration? Skilled immigrants are often a good source of new business activity in the United States, including new firm formation.  Later this month the National Chamber Foundation is hosting a forum on skilled immigration. The role skilled immigrants play in driving innovation and helping create new companies will be on the agenda.

Want to continue the discussion?  Join us on September 28 to hear Mayor Michael Bloomberg speak on this topic.
Click here to register and view event details.

The Rules of the (Video) Game Have Changed

August 31, 2011

By Michael Hendrix, Research Manager

In anticipation of NCF’s upcoming CEO Leadership Series event with the head of Electronic Arts (EA), a colleague shared with me a video from EA showing their lineup of games for this year.  After watching it, I couldn’t help but thinking that, as with so many things today, the rules of the game are changing.  And this time, quite literally.

As you watch the video below, consider how EA is presenting its games.  It’s hard to spot a television or desktop monitor anywhere.  Instead, the tablet is at the forefront.  There’s been a lot of thought put into how tablets may be changing the publishing industry or music.  What about for the gaming industry?

When I was growing up, you interacted with a game with a controller, mouse or joystick.  Video game developers constantly improved graphics and deepened story lines, all to further immerse you into the environment on-screen.  Armies of graphics designers, story board artists, and writers would craft first-person shooters and simulators over years of development.

Tablet games by necessity are entirely different.  You need no extra devices to play; just a touch, tap or swipe of the finger.  Getting immersed in a game now is more direct and tactile than visual and emotional.  Same result (addiction), just through different means.  And while tablet games may be relatively simpler to make, game developers must deal with a product cycle for tablet apps that’s counted in months, not years.

When EA held a conference call with investors in July, CEO John Riccitiello had this to say about the rise of tablets:

“Most of us on this call recognize that the industry has radically changed and the pace of change has accelerated dramatically.  Gone forever is the 4-to-5 year console cadence that gave developers ample time to invest and retool for the next big wave.   Consider that just 18 months ago there was no iPad, Google was experimenting with Android, and most big games were limited to a single revenue opportunity at launch.  Consider that each of the major consoles now has a controller that encourages users to get off the couch and get into the action.  On smartphones and tablets like iPhone and iPad, the top paid apps are all games.  Recognize that the fastest growing revenue streams for console, PC, smart phones and tablets are all digital.”

If tablet-based games represent the future, game companies will likely need to fundamentally reconsider their approach to product development and marketing.  EA may already be well on the way to doing just that.