As Carlotta Perez has very thoroughly explored in her treatise: Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, a new common sense emerges from the beginnings of each socio-economic cycle to the end where the establishment embraces the new technology and it remakes the world. Every day across multiple sectors, we are tracking that new common sense at EntrepreneurCountry. Our Forum on the 20 of March will talk about three areas of disruption: digital currency, the maker revolution and Internet of Things.
The United Kingdom, where I live, receives a disproportionately high amount of the global venture capital allocated to backing fintech start-ups. The UK is good at financial services. The corollary is that you have a lot of entrepreneurs going after the existing financial services industry to smash it to pieces, and remake of it an entirely new financial services ecosystem.
There are at least three versions of the future which we may witness unfold:
- Without question, there is one version of the future where the technology platform firms (Apple, Facebook, Google, etc) take over the banking & financial services industries
- There’s another version of the future where Digital Davids disrupt financial services players and build the new financial services industry (Wonga, Zopa, Nutmeg etc)
- There’s yet a third version of the future where David hops on the back of Goliath, exploits the niches where the Goliaths don’t want the business, sell in a white label product, develops markets that they don’t yet see, or leverages their distribution and brings them new digital revenue streams.
If we assess these in turn:
The tech firms understand Kurzweil’s Singularity is Near starting point that the world has gone network. Technology operates exponentially, not linearly. Their advantage as a platform company is that they have less regulation, take advantage of others’ investments in infrastructure and by creating clear economics, the applications want to run over their anthill as everyone knows who gets what.
The Digital Davids who are exploiting massive market ops which the banks and other financial services players have left open, who have raised capital effectively, created brands successfully on the back of trust and value prop also exploit network effects due to the exponential nature of technology. They can do more with less.
The Goliaths must migrate to become platform businesses. This is tough as they have the regulation, infrastructure investment and other legacy issues to deal with, but they also have huge advantages – customers, brand, trust, staying power, global reach. They can be a highway for Digital David’s who need that scale, reach, distribution. They have to shift their thinking however from supplier-centred to consumer centred, from linear to network, from the R&D lab to the market. They can’t assume they drive the timeframe of the changes that will occur, but the opportunity for them to organize a set of economics for their industry is real. Unless they can use technology to open themselves up as much as possible (cloud, mobile, data aware) to be the highway, to be the anthill, they won’t get the new revenues that the Davids can bring which are additive to the P&L, but they will get stuck with the costs in terms of time dealing with regulation and investment. Lose Lose.
The challenge for every CEO is to reimagine their industry as an ecosystem. To ask themselves – who are my natural allies and how do I make it in their interest to help me to achieve the market position that I seek to own. Those who do that thinking, create those incentives, ultimately have a fair shot at creating the economics for their ecosystem. We think it’s pretty clear that the winners in this next phase will be those companies who organise the economics for their ecosystems. We call that Ecosystem Economics™, and I advise and invest around the framework below: helping Davids and Goliaths achieve those network effects that the landscape offers up to them when they apply a disruptive economics framework to it.
Monitise, a company that Ariadne advised from post-MVP in 2004, to end of 2012 when its market cap was nearing $1 billion, perfectly exemplifies what we mean by Ecosystem Economics™. They moved from the lower left side of the grid to the upper right lock in position over a decade. The founder/ CEO Alastair Lukies made a very simple but profound statement many years ago: “if this (the mobile money world) is going to work, it has to work for everyone”. And he crafted the rails and the economics of making it in the interests of his natural allies for them to pull him into the market.
Carlotta Perez believes that disruptive technologies appear only once in the 60 to 80 year cycle: at the beginning. So the arrival of digital currencies like Bitcoin may signal the arrival of the next cycle, or might be the culmination of the new common sense emerged at the end of this cycle depending on you view things, and what weight you give to them.
There’s a lot of work to do to make the infrastructure of the digital currency a reality, but it would take a hardened cynic to believe that bitcoin doesn’t have tremendous momentum today that will enable it to play a role in the future of money somehow.
As a fierce defender of market-based economics (precisely because I believe that they protect/defence/enhance all of our abilities to drive economics for ourselves), I lean into the bitcoin opportunity.
I will be speaking about that with some world experts such as Carol Realini at the next EntrepreneurCountry Forum on the 20 of March at the Royal Institution of Great Britain. For more details about our forthcoming event click here.