By Paul McNabb @PAMcNabb
Basic economics tells us that markets are efficient when supply and demand are in balance. Too many goods brought to market, and prices fall. Too much demand for scarce supply and prices rise. Although we can appreciate that reality is more complex, it’s easy to believe most real world markets eventually adjust to find an equilibrium where markets clear.
So what happens when information technology comes along and massively disrupts that balance? What happens when digital innovation in fact changes the very nature of the offer being brought to the market? Prices could drop rapidly, demand increase, and new markets become addressable. In economic terms, goods and services are democratised as they become more widely available, new needs are uncovered and met, and new jobs are created. That’s the vision I wrote about in a previous blog – Everything as a Service – and I want to develop the idea with a couple of illustrations.
As we move from the world of things to the world of data about things, the definition of a product or service changes. The world of “things” is organised around machines and experts as scarce resources, the world of “data about things” conversely has an abundance of derivative outcomes, analyses or services that can be consumed. From a world of a few, scarce things to which access has to be rationed, to an infinite amount of data based products with essentially zero marginal cost of production.
Let’s take two examples – healthcare and transportation. Healthcare costs are rising rapidly, and traditional delivery of services has been practitioner centric – but unless we want everyone employed as a doctor, nurse or specialist, we need to shift to an outcome centric model. Similarly with transportation, owning a car is expensive, inefficient and increasingly has a lot of negative externalities. We need to shift from a vehicle centric model to a journey centric model. In both cases from thing centric, to data about things centric.
The Patient Will See You Now
The NHS is something of a national treasure in the UK – that is it has a comfy place in that part of the national psyche the general public reserves for Stephen Fry, Strictly and the older members of the royal family. There are those who think – whatever the question – the answer is more funding for the NHS. There are those who are convinced the service has been destroyed by whatever government is currently in charge and through whatever attempts at reform have recently been made. And everyone believes the service used to be better and is a sad reflection of its former glory.
Well, I’m certainly not brave enough to attempt to offer a political or funding solution, but the above charts make clear the fundamental challenges the NHS and any other healthcare provider are going to have to address. The demand for the service is growing much faster than the supply – and in addition people are living longer and consuming much more healthcare in the latter years of their lives. Rapid innovation in new technologies that can keep you alive longer mean there will soon be new columns with taller bars on the first chart. Combined with poor workforce demographics (the ratio of older people to younger (tax paying) people is increasing steadily) and spending on healthcare must continue to escalate. And so are we fatally set for a battle of the generations – as predicted in the press – on who foots the bill?
Or is there another way – what if instead of just looking at this as a thing-centric (practitioner) model we convert to a data about things (patient) centric model? The “virtual patient” becomes the central digital resource, updated and integrated with every diagnostic, treatment drug and daily vital statistic. AI and analytics constantly interrogate and interpret this dataset, identifying changes, improvements, what works and what didn’t. Expert advice and review can be integrated in person or remotely as necessary, and concerns identified and anticipated before they become crises – on the principle that an ounce of prevention is worth a pound of trauma, an issue that ends up costing health services billions. Looked at from the supply side, the cost per healthcare outcome drops dramatically – people can consume much more of it which makes the benefits of new care and technology more widely distributed. Dozens of startups are working on every aspect of this vision and 2017 saw close to a record $7bn venture capital invested in the US, with areas like consumer health diagnostics, clinical and treatment support and fitness and wellness seeing the most interest.
The Journey is its Own Reward
I spent several years living in China and can attest to the terrible air quality in cities like Beijing, Chongqing and Shanghai first hand – not one of which by the way even make the list of the world’s most polluted cities. You can’t help but notice how clogged those cities are with cars – traffic is horrible. China has built in short order the world’s largest road network, as well as a dizzying array of mass transit systems – but it doesn’t seem to help. Total car ownership in China is at an impressive 220m, second only to the US. And yet car ownership per capita is about 1/8th that of the US. To bring it up to the level of, say, Romania or even Taiwan would imply more than a doubling of this number. With fossil fuel consumption the largest source of air pollution, and an increasingly aspirational Chinese population already agitating about air quality, this eventuality is simple untenable for public health reasons – not to mention a lack of parking or that dreadful traffic problem. Part of the solution must be electric vehicles, but particularly in China that simply replaces one fossil fuel (petrol) with another (coal powered electricity) and does nothing to help with traffic and parking.
Time to shift from things (car ownership) to data about things (journeys). A journey centric view increases asset utilisation (most cars are empty most of the time), consolidates empty passenger or cargo space, reduces costs and consumption of maintenance and lowers traffic and infrastructure demands. It’s no surprise that Didi Chuxing is China’s most well funded startup, and that that list also includes Ofo and MoBike, two companies who have turned bike ownership into urban journey services. Similarly, many of the worlds most well funded unicorns are addressing transportation challenges and the transport sector has been enjoying terrific growth as a VC investment theme. We tend to think of services like Uber, Didi or MyTaxi as taxi-hailing apps, but they are more properly transportation as a service – in other words journey – companies. Looking at transportation in this way not only lowers the cost per outcome – no need to own a car with all the cost and overhead that entails, just summon a journey provider when you need one – but helps address negative externalities like traffic, pollution and too many cars consuming too many resources in our cities.
You’ll know it when you see it
Transportation and healthcare are far from the only industries that look like this. The granddaddy of them all is IT itself – demand has been exponentiating on the back of mobile, social, IoT, data science and AI among many other applications – whereas supply (IT budgets) have remained relatively fixed. The only solution – cost per transaction has to plummet – is the economic insight that has led to the rise of the cloud. Technologies like virtualisation, SDx and containerisation have abstracted away the need to know anything about the underlying hardware you are using. You only need some data about what resources you need to perform a given task. And the orchestration of cloud-scale data centres by folks like Google, Microsoft and Amazon has made the utilisation of the underlying hardware much more efficient than any individual company could hope to achieve, commoditizing many hardware business models in its wake. Things – computers, routers, storage drives, switches, racks, coolers – are replaced by many layers of data about things. IT – like healthcare and transportation above – is becoming a service.
There are many further examples. To take a couple from our portfolio, CloudNC is turning things – numerically controlled shop floor machining tools – into data about things – optimal digital tool paths. In this way, more accurate job pricing and routing become routine, and utilisation of the underlying assets increases. How the manufacturing process actually works – using what kinds of machine on which shop-floor – is abstracted away. In another example, PassFort is turning data about consumers and businesses, the products and services they use and are entitled to into data about a trusted digital relationship between these customers and PassFort’s clients. In our increasingly regulated world, you need to understand the entire and ongoing nature and history of your (increasingly virtual) relationship with a customer.
This idea of abstracting things into data about things is already transforming many industries, and I’m not sure any industry is immune. For example, we are frequently told that the two most expensive things people own are their house and their car. We are also told that millennials cannot afford – or have little interest in – either. They may well consume both as a service. In the medium to long term those two observations are on a collision course. The consumer wallet is on its way to being transformed into a basket of services, with huge ramifications.
Finding the right data about the right thing, identifying the new digitally defined outcome, building the key technology that will allow you to disrupt a whole industry – this is what the next great wave of technology companies will do. Some of these disruptions are already highly visible – transportation as a service, patient centric healthcare, Cloud – but many are not yet. It’s the diligent work of many a venture capitalist to identify them. And it is simply the most exciting time to be an entrepreneur trying to build a company, because everything (as a service) is on the table.
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