16th October 2011
When I pit my $75/hour rate against someone in Pakistan asking only $30/hour, how do I survive? And if I cut my rate to $35/hour, does someone else offer the same service for $15/hour?
* Book: The Next Billion Seconds. Mark Pesce.
I think this new book of Mark Pesce, which will likely suffer from a strong case of technological determinism, bremains very interesting nevertheless, by alerting us on one potential direction of technology. It answers the question: what happens if neoliberal technologisation runs amok, without social replies and human solidarity.
Excerpted from the introduction, from Mark Pesce:
“What happens after we’re all connected? When I asked that question, seven years ago, well over eighty percent of all Australians had their own mobile, and the bulk of the nation had signed up for broadband Internet access. The answer led me on a journey through the future of media, education, politics, and now, economics. In July I started to set down the outcomes of my research in a book titled THE NEXT BILLION SECONDS. A billion seconds is just a bit over 30 years – a generation, if you will – and it’s my belief the billion seconds from 1995 to 2026 will be as important in the history of human affairs as the birth of language, seventy thousand years ago. Being connected means being something new. We, here in this room tonight – along with everyone else on the planet – are in the middle of this transition, halfway between what we were, and what we will become. That’s always been true, but just now the transformation of our civilization has gone into overdrive, because all of the frictions which kept it chugging along at a lazy pace are evaporating. We’re moving into a superconducting phase of development, with no resistance holding us back. Stripped of all baggage, we’re accelerating wildly, unpredictably, into a future which looks almost nothing like the recent past.
The hyperconnectivity created by the mobile dramatically improves an individual’s ability to earn a living. To own a mobile in Bangladesh or Peru or Nigeria means you have a capability to earn more to keep you and your family alive. This effect is completely obvious, so everyone in the developing world has been acquiring their own mobile handsets. In the decade from 1999 to 2009, we went from half the world’s population never having made a phone call to half the planet owning their own mobile. We’re now well past that point. There are over six billion mobile subscriptions and almost five-and-a-half billion individuals using mobiles right this minute, and, if current growth patterns are maintained, in five years’ time everyone on Earth – over seven billion people – will have their own mobile.”
Key thesis: Hyperconnectivity, and the frictionless free fall of markets
“The law of supply and demand amplifies under the influence of hyperconnectivity. We are more likely to go to those who can provide a room or a ride or a piece of code cheaply. In short order this brings us to the ‘race to the bottom’. In an environment freed from the frictions of the marketplace, there is no room for rent-seeking or even the kinds of labor practices which keep developed economies stable. When I pit my $75/hour rate against someone in Pakistan asking only $30/hour, how do I survive? And if I cut my rate to $35/hour, does someone else offer the same service for $15/hour?
At the moment, Uber sets the rates for its drivers, preventing a race to the bottom. But Uber is just software. Someone will come along and create a similar piece of software, one which allows transaction participants to negotiate the price – just as Zaarly does. As these designed-in frictions are designed away, the market opens to economic forces accelerated to the speed of light, and all price supports sustained by market frictions begin to collapse.
The frictionless free-fall of markets doesn’t end with the individual labourer. Businesses born out of hyperconnectivity, aggregating demand and supply – firms such as eBay, Uber, and AirBnB – face another round of disruption. The connectivity which made eBay possible also allowed the firm to centralize its aggregation, bringing all buyers and sellers to a single website, where their traffic could be channeled, and a tariff placed on all transactions. In the virtual marketplace of eBay, sellers pay ‘rent’, in the form of a transaction fee, a cost passed along to the buyer.
Centralization is a form of market friction, in that it grants whomever controls the central point the power to act as taxman, tollbooth, and censor. Apple has been notorious for the strict controls it puts upon apps available for iOS devices, which must be purchased through its centralized iTunes store. If your iPhone app does something Apple doesn’t like – or considers a potential competitive threat – Apple has the power to deny you access to its centralized retail channel. Because the hyperconnectivity of Apple’s iOS devices would normally allow peer-to-peer exchanges of software and other items of value, these market frictions had to be engineered into the operating system.
The market frictions of centralization become harder to maintain as we become more hyperconnected. The recording industry profited enormously in the transition to digital recording, because of the friction associated with the distribution of hundreds of megabytes of music. As compression techniques improved, and broadband spread throughout the developed world, the barriers to peer-to-peer distribution of music progressively collapsed.
We are now sufficiently hyperconnected that it is not only technically possible to build a peer-to-peer competitor to eBay, but inevitable, as hyperconnectivity tends through time to remove all frictions in the market. The frictions that eBay uses to generate revenue are being smoothed away by a diffuse, distributed, decentralized, global aggregation of buyers and sellers, less bazaar than switchboard, more MapReduce than website. The same fate will inevitably befall Uber, AirBnB, even Zaarly – any business seeking to conduct aggregation-based arbitrage. Hyperconnectivity does not support the inefficiencies needed to make these businesses a continuing success. They are all intermediate forms, leveraging the brief moment between the disconnected and hyperconnected worlds.
Every commercial entity, whether an individual offering up labour and expertise, or an organization offering products and services, will soon present themselves through an interface that removes all of the frictions of the business transaction.
Let’s use Kogan as an example. With appropriate APIs to the manufacturers of LCD panels, television electronics, electronics assembly, and transport, I could have a TV built-to-order. This may seem like a bit of work, but once someone has put together a particular supply chain, by mashing-up the appropriate APIs, that supply chain can be shared. I won’t have to do much more than call up that supply chain widget on my mobile, and press ‘order’.
Seen in this way, the transportation logistics provided by Uber, materials offered on eBay, and a design consultancy facilitated by Freelance.com are no longer destinations in themselves, but APIs, each offering a specific element in a production value chain. The recipe which strings them all together, turning an idea into reality, is the innovation, an innovation which can only emerge where friction has been been removed in every component of the recipe, via an API.
Like everything else within the culture of hyperconnectivity, these recipes will be shared within communities of expertise. People who care about televisions will trade recipes to cook up custom models; people who care about coffee or cookware or carpeting will be able to do the same thing. Being part of a community of expertise gives you access to all the production value chains associated with that community. This is already true: consider how hobbyists trade tips on where to find particularly obscure bits of mechanism, recordings, and so forth. But enough friction still exists to keep these production value chains very short. As that friction disappears, these production value chains grow long enough to span the whole distance from raw materials to finished product.
A hundred years ago, when Henry Ford established his River Rouge assembly plant, he needed nothing more than iron, sand, coke and raw rubber. From these basic ingredients, he manufactured millions of Model Ts, because River Rouge encompassed a production value chain able to refine, fabricate and assemble every part of the automobile. We are at the threshold of a similar, individual Industrial revolution: as businesses publish their APIs, customers gain unprecedented control over the means of production. A given customer can optimize for price, delivery time, carbon footprint, or any of a countless number of variables, crafting a production value chain which precisely meets their needs.
As more businesses present themselves as APIs ready to be wired into production value chains, the need for a frictionless medium of exchange will become more pronounced. Just as PayPal came along to take eBay global, a hypercurrency will arrive on the scene just as we need it, because there will be a universal demand for it.
As capital migrates from friction-filled national and international finance markets into hypereconomic frameworks, institutions dependent upon those frictions will be threatened. Banks will not be able to collect interest. Governments will not be able to tax – customs duties and user fees look to be the only ways governments can generate revenue. Courts will not be able to seize assets. The peculiar arrangement of laws and regulations which keep our economic system stable will grow increasingly meaningless. Governments and courts will try to follow capital flows into hypereconomic zones, only to learn that their mechanisms of control and enforcement are poorly matched to such a fluid environment.”