Mobiles are the Ground Zero of today’s ‘creator economy’: Paul Saffo

Paul Saffo belongs to a rare breed of ‘futurologists’. His calling card says he is ‘managing director —  foresight’ at San Francisco-based Discern Analytics.

He’s also a consulting associate professor at Stanford University. A forecaster — including of technology — for the last twenty years, Saffo holds degrees from Harvard, Cambridge and Stanford, and is a Fellow of the Royal Swedish Academy of Engineering Sciences. In a fascinating interaction last week at the Palo Alto campus of the hoary university, Saffo talked about — what else — the future of technology, global economies and the world at large. Adapted excerpts from Saffo’s talk at
Stanford and an interview:

Which way is the world of technology heading?
In the short run, there are three technology events that are shaping the future — clouds, crowds and open systems. In the next two decades we’ll see more change than we have in the last 100. So fasten your seat belts and it’s going to be quite a ride.  The first change is a shift from channel to cloud in the media world. People in the media business are in a privileged position. On the one hand, you are covering this revolution. On the other, it’s absolutely smashing your jobs and the organisations you work for. At the end of the day, this is really a media revolution. So the first change will be in the media. We all know about the channels in the media — the television channels, the radio channels … now all the channels are going to shift to the cloud. And channel has become a metaphor for things like YouTube. The second shift is from closed to open — our classic video world and IT world has been mostly about closed technologies.The shift to open matters because it allows us to use the skills of a vastly larger number of people than in a closed system. That’s why companies like Microsoft are struggling, while those like Google are doing well. This is going to be problem in the media world because the industry just doesn’t get it. And by the way, a lot of governments don’t get it, a lot of companies don’t get it. The recording industry in America doesn’t get it, Hollywood doesn’t get it.
Which brings us to the third shift, which is the shift from a notion of an audience to the notion of a crowd. This is a truly revolutionary shift. We have got a good example of that recently in Wael Ghonim at Tahrir Square in Egypt and we had that for a couple of decades in the Silicon Valley. Sometimes these revolutions are really REVOLUTIONs that bring deep social change and unexpected consequences. Wael just signed a book deal and I guess it will be called Revolution 3.0. This is a guy who works for Google, who used Facebook to arouse revolutionary instincts in Egypt. In the old world he would have been fired; Google, everyone’s now saying, should make him its chief strategy officer. Now he did this using somebody else’s software. That’s what open and cloud lead to. 

What are the implications of this?
As a forecaster, I always follow the rule of looking twice as back as I am looking forward. To see what makes sense in the next 20 years, look back the last 40 years. Even in times of rapid change, if you look back, you can see patterns on how things unfold. There’s a fundamental change happening today in economies that will directly affect media companies. It makes sense to go back a 100 years and look at what the US economy was. At that point it was an emerging ‘producer economy’. It was an economy pre-occupied with ‘making things’. The main concern for companies then was how to make things cheaply enough to satisfy demand of a burgeoning new middle class and working class. It was an economy that promised abundance, but hidden behind it was the constant spectre of scarcity. For companies, the challenge was how to stay one step ahead of people’s desires, how to overcome scarcity. Therefore, for me at least, the central actor of that economy was the worker. Then an interesting thing happened after World War II in the US — there was no recession, no depression, which is startling, because it’s axiomatic to economists that whenever a war ended, depression followed. Another thing also happened: the ‘producer economy’ of the last 50 years ended when companies realised to their horror that they have become so good at making things they are producing much more than what people need. That was a fundamental change because the producer economy had ended with the war and was replaced by a ‘consumer economy’.

How did the consumer economy begin?
If the central actor before World War II was the worker, it was now the consumer, the person who purchased. If the time clock was the symbol of the producer economy, the credit card — which was then called the charge card — became the symbol of the consumer economy. It’s no coincidence that the consumer economy emerged along with the invention of television, which was a hugely potent vehicle to solving the problem of plenty.  If the challenge in the producer economy was how to make things cheaper, in the consumer economy, it was how to inflame desire — how do you make people buy things they never needed. This brought about a shift in corporate powerplay also. The vice-president of manufacturing generally became the CEO of companies in the producer economy, but in the consumer economy, the VP of sales took centre stage. “I sold it”, “I was the one who compelled people to buy it”. And television was central to creating the consumer economy just as the internet is central to creating the new economy of today.

And we touched the extremes too...
The first fifty years of the 20th century was about getting better and better in manufacturing efficiently, and the next fifty about getting better and better at inflaming people’s desire to consume, to make them buy things they really don’t need. They did so well! For example, here in the United States people were buying things they didn’t need with money they didn’t have, ending up with products they couldn’t possibly use and couldn’t possibly get rid of. So people’s houses were full of stuff they didn’t need but still had and thereby created a new industry — storage — a place where people could store all the stuff. As you know, Americans are lazy and for those that didn’t want to go to the storage, we solved the problem by bringing the storage container to people’s driveways where the truck would then carry it off. We had reached the absurd extreme of the consumer economy.

What happened next?
The consumer economy ended in November 2008 with the great meltdown of the financial markets, when we realised that the old model could no longer go on. We are now in a new economy, whose central actor is neither the producer-worker of the early 20th century or the consumer of the latter part, but an entity that consumes and creates at the same time. My preferred term for this is ‘creator economy’. That’s different from a creative economy where people sell things that you can hang on wall etc. Now creators are ordinary people who are making new things and they are not even realising it. And this directly affects the media business.  Before YouTube, the only way to get your images on screen was to work in the television industry. Before Wikipedia, the only way to do an encyclopaedia was by becoming a university professor or a smart person working with Encyclopaedia Britannica. But now, any person can do a Wikipedia entry. Earlier, you had to work in a newspaper to sent out news; now you can use Twitter, Facebook, MySpace. So it’s a profound shift from a consumer economy where consumers were bystanders who consumed, to the new age where consumers are participants — if you don’t participate, you can’t have the experience in the creator economy.

Is Google the paradigm of the creator economy?
Have you played Call of Duty (the videogame)? This is what I was referring to about the huge impact on the media business. In the first 24 hours of its launch, it saw 360 million downloads — much, much more than Avatar (the blockbuster 3D movie) did on its first day of release. That’s how profound this new creator economy really is. And there are such examples absolutely everywhere. Mobiles are the new Ground Zero of this creator economy. People think they are buying something, but they are actually creating something — growing vegetables in farms, collaborating with friends … that’s the essence of social media. And of course, the classic instance of this is Google.  You can’t watch Google, right? If you don’t put something in it (search), you can’t get something out (search strings). And Google is absolutely essential to us. Many of you will probably remember other search engines, but Google’s a lot better, right? The Google screen is fabulous and the Google founders are richer than God. So how does this work? Well, when you are on Google, you think it’s free. The search string that you create — when you ask a question — you think it’s valueless because it’s the answer that has the value for you. But for Google, all the search strings aggregated is the basis of its economic model, for based on that it targets advertisements. That’s the essence of this new creator economy. Transactions where people are often paying and they don’t realise they are paying and it’s hugely valuable to the other party. It creates something that’s vastly bigger than what anyone imagines.

So here’s the essence of the creator economy from the media perspective. If I ask can you write something for me, you say, ‘Yes’. Then I say, give me a 900-page book on future competitiveness in a networked society. You’ll say ‘I am journalist, that’s not my field’. Ok, then how about a 200-page book, and you’ll say, ‘Call my agent’. How about a 20-page white paper? You’ll say, forget it’. Ok forget about all that, give me 17 syllables, 140 characters, give me a Google search string or a tweet and you’ll say, “Sure, I’ll do that right now’. That’s why Google is the phenom it is. Companies that are largest harness the smallest quantum of creativity.

Somewhere out there in a garage is a company that’ll be bigger than Google because it will be able to harness even a single click on the mobile phone, and an even bigger one some day which will harness all the data streams coming off your mobile and from the sensors in your body. That’s where we are at today. The creator economy is just at its beginning. It’s a period of shift. I think Alan Greenspan (former chief of the US Federal Reserve) was the luckiest economist in the history of the world. He took his job in 1987, in the period of what we call ‘The Great Moderation’, a period of predictable economic consequences, and he checked out in 2006, just before everything fell apart. People say he was very smart, but actually he was very lucky. The Great Moderation was the closing years of the consumer economy. We are now in a different world. That was the world of John Maynard Keynes, a world of government policy making a difference. We are now into a world, after the collapse of 2008. We are into a world, in the phrase of economist (Joseph) Schumpeter, of ‘creative destruction’. He understood the deep dynamics of innovation and technological change. Schumpeter is the economic patron saint of the next 20 years. In my opinion, the Great Moderation has been replaced by the Great Turbulence.

What’s the symbol of this new economy?
If there is a symbol, it’s the microprocessor plus the inter-modal container. It’s the essence of what globalisation is all about. And the ultimate irony is that Sun, Google and others will offer this — entire data centre in a container. That would be the symbol in my opinion, of this era of creator economy. As human beings, economist Samuelson said, we move from expectation to expectation, not satisfaction to satisfaction. Now, I am mainly concerned about the social consequences of technology. We really are reinventing ourselves as a species. And the geopolitical challenges are overwhelming. You all are seeing that in India, of course. Humans are optimists, but we put our deepest hopes or fears in new technology, thinking this is the new nirvana, this will deliver health. Of course it never happens that way. But I like that there’s uncertainty because uncertainty is opportunity. If there’s less uncertainty, it means the folks we don’t want in control are in control. As long as technology keeps innovating, and you have people who want to innovate — the revolutionaries — you stay a step ahead of the people who want to hold things back. That’s true politically; you have seen in Egypt and Middle East. Right now, the revolutionaries understand technology better than governments. 

Will it be a technology company on top of the society or a telecom company?
What do you mean being on top of…

Controlling most of the elements of their lives, of consumer interest…
Gosh! I hope it’s neither. If there’s somebody on top, that means we have a hierarchy. We need instead an ecology where we have bigger and smaller players but there are no situations of deep inter-relationships. To me, this is a future of networks and power nodes, and I don’t want technology companies to be governmental. What we have to do is pay attention to the links. If we get the links right, players large and small tend to do the right thing. If we get the links wrong, they’ll gravitate towards the wrong things, you know … the disaster of terrorism that we had over the last decade, whether it is al-Qaeda or Lashkar-e-Toiba .. that was where we got the mix wrong. We created a situation where we started reinforcing the wrong behaviour. I think we should pay attention to the environment, not the players. If you get the environment right, players, no matter how large they are, they tend to do the right thing. You see, geopolitically as well, what’s changing … I look at United States, India and China … it’s a terrible oversimplification  … in the US, see who’s elected: most of the politicians are lawyers. In China, most are engineers, Hu Jintao (the Chinese premier) is a civil engineer. In India, most of the politicians are professional politicians.

That’s very euphemistically put…
No, I think it’s accurately put. And by the way, if I have to bet between India and China over the next 20 years, it has to be India hands down because you guys understand inefficiencies better than China does.

Can you give examples of that?
The problem with the US democracy is that we have too many feedback loops between the politicians and the public. And to me feedback loops mean politicians are not allowed to make long-term decisions because they won’t get re-elected. China has the opposite problem: too few feedback loops between the public and the government. The challenge for the US politicians is how to turn off the public and not listen to them long enough to do the right thing and the challenge for Hu Jintao and his successor is how to listen very, very carefully to the public. The challenge in China for the leadership is how to follow the people. In India, you have this wonderful, chaotic loose connection between the people and the government and the price you pay is … there is corruption … and the dispossessed and educational issues. Each of the three systems has a price. In the US, the system is such that it becomes a megaphone for nutty people like the Tea Party-ers. In China, the price is that good people go to jail, have their liberty taken away. In India, you have a lot of frustration … there are moments when things look like the crowd scene in Monty Python, but the results are better…

We stumble-bumble our way through…
I think the right word is satisfies. You satisfy your way through, you figure out a way, some ingenious workaround.

Some kind of natural selection at work?
I am not a believer in natural selection. You guys got a pretty bad dose of that thanks to the Raj. Social Darwinism is a really terrible idea. It has had a bad impact in terms of free-market capitalism. The notion of unfettered capitalism is as bad an idea. India has had to do its workarounds. It’s also the difference between a hardware culture and a software culture. China is a hardware culture, India is a software culture.

So if you telescope the theory, it’s about innovation?
Oh, this is about innovation in all three countries. You also have the demographic advantage and a demographic problem. I look at Mumbai … it’s the country in South Asia that’s most like San Francisco except it’s bigger. Of course, the population is a terrible problem. On the other hand, China, when it starts to age around 2020-21 because of the one-child policy, they are going to age so damn fast that they are in real trouble. They have got 10 years to build an equitable society in China or it will all come apart. The wheels will come off the truck. India has other issues, but that one you don’t have. And also because of software culture … improvisations to make things work … you still pay a high price for crises, but you come through crises better than your peer hard-engineering culture comes through. Will I trade China’s problems for India’s? You bet. India’s problems are much more manageable, and you also have independence.

You referred to Schumpeter and this being the age of creative destruction. India, with its 4% PC penetration, is expected to bridge the digital divide through mobile phones. How does one ensure things don’t go out of hand when such disruptions occur?
What does out of hand look like?

Massive spike in data traffic everywhere, inadequate infrastructure and monitoring...
Aaahh, that doesn’t sound too bad. This is also where we tend to think that the latest technologies — the developer community thinks it’s a deus ex machina — are going to solve our problems — but it’s a much more mixed bag. But I think on balance … Gosh!  India did well to push the idea of communications. 

We didn’t really do it for 50-60 years, it was in the last 10-12 years that it really...
Really took off, yeah. I remember going through India in the 1990s and it was like the bid flipped and all these 20-somethings who were like… totally with it. I think what happened with India is that everybody was so amazed watching the rise of the Cyberclass (software-BPO)  that everyone slacked off a little bit. “Oh we don’t have to worry about that, it’ll take care of itself”— and that’s how you ended up with a situation where you have a lot of population that still doesn’t have internet connectivity.

Coming back to the creator economy — so it’s not about a fad, but is an organism that’s embedding into the DNA?
It’s an ecology where everybody plays a role. This isn’t about private industry. Silicon Valley succeeded because it was a public-private partnership and so there has to be a deepening of relationship, the government has to play a role to encourage this in spots where it may not be economically sensible.

What is the challenge for the three governments in the US, India and China today?
For China, the big challenge is how to open up technology while keeping control of the society..

That’s a contradiction in terms...
No I think it’s just about skillful management. In the United States, our challenge is how to attenuate the signal a bit…

But by its very nature, technology opens up things and it becomes less controllable, if you will…
Not always. When new technologies come in, typically they are technologies of freedom. Once a technology is established, it becomes a technology you control. You can think of a couple of times in the (life of the) internet where it was absolutely free and everybody used up and the incumbents (governments) figured out a way to shut things and control. China’s doing a pretty good job of creating a firewall. 

How is India doing?
I get a good feeling about what India is up to. It’s a nice, happy, chaotic .. just like the Silicon Valley. India feels like a very vibrant marketplace.

Is there any single technology that excites you today?
There are all sorts of stuff going on. I am really intrigued about (laughs) 4G. I look at it and broadband in the same way as … you know the story about (Mahatma) Gandhi, when he came back to London the first time after he became famous and this English reporter rushed up to him and asked what he thought about the western civilisation?

He said “it’s a good idea”...
Yes, that’s what I think about 4G.

You mean it’s not practical?
No, the problem with the telecoms — I am not talking about the hardware companies, but the operators — is that they are torn between how to make money and how to deliver the experience people want. The US is one of the most backward countries on the planet when it comes to broadband. The stuff they are calling 4G here is a bad joke. It’s more like 2-and-a-half G, it’s pathetic, and they charge too much. 

Coming to India, the country has been a low-cost offshore destination for a while now. How long can this pitch run?
India’s done well so far. It was about quality and low-cost, more about low-cost. But now we are seeing Indian costs rising and other places competing, and some previously offshored stuff coming back to the United States. In a world of crowds, clouds and open, we are changing the way we do software. So India has to look at what has happened over the last 10-15 years as a wonderful gift and the country did a really good job of exploiting it. But now it’s time to see how to use that to create a new kind of industry. Competing on cost is going to end in the next five years. This is going to be about competing on velocity and competing on quality.

What do you mean by velocity?
Who does it fastest. There were two researchers here in Stanford way back in the 1980s who studied software companies and they learnt a lesson that every generation learns and every generation forgets — of the first-mover advantage. You are better off getting an imperfect product out first and perfecting it in the marketplace than fine-tuning it and waiting to have a fully done product. That’s velocity. Get it out first, grab people. It’s a lesson I learnt first from Mitch Kapor, the Lotus (123, the software) founder, many years ago that if you have something that’s 10x (times) better than my thing, you have a new product. But that doesn’t mean you can sell it because it doesn’t have enough for people to change. But if it’s 100x better, then that’s a whole different experience. People don’t shift when they get comfortable, they don’t shift to an improved version. They shift only when they get something that’s utterly, completely new. Velocity is about doing something utterly, completely new. It may be imperfect, but people can overlook that.

You talk about why yuan can’t be a global currency and the curse of natural resources. Can you elucidate…
What China has to do to keep growing its middle class and satisfy its consumers are things like keeping interest rates artificially low, keep the exchange rates artificially low and basically keep exporting to grow its middle class. That’s completely inconsistent with being a global reference currency. The steps that China will have to take to become a global reference currency will create vast revolutions in China, so they are gonna focus on their domestic market. You know, I was meeting a senior Chinese minister a few days after 9/11 (September 11, 2001 terrorist attacks on the US) and he said, “We have a terror problem of our own in the Uighurs (the Chinese-Turkish ethnic group that lives in Mongolia and Xinjian in China) and stuff, but we are so grateful to Osama bin Laden because it bought us 10-20 years to keep the United States off our back while we develop. Osama’s death has shifted things in south Asia geopolitically in a profound way. This really is like 1837 and the start of another ‘New Great Game’ — between India, China and the United States, and it’s going to be about resources in a big part. Poor Tibet, they had the curse of having a lot of valuable resources like water. If they didn’t have that, the Chinese probably would have left them alone. Look at the curse of oil on Nigeria, look at Colombia, Venezuela…

What then happens to the ‘B’ of Brics?
Well that will require another long interaction. Brazil has done a good job so far, but like India, they have a lot of infrastructure problems.