After a week in Silicon Valley last month, I came to the conclusion that I am a dinosaur. The speed of change in technology has been so fast and so profound that we are lost in transition, translation and transformation.
The digital revolution is already upon us, but the baby boomer generation, to which I belong, is having difficulty understanding this because we still upload (read) on paper, whereas the millennials (those born between 1980 and 2000) upload information mostly on mobile phones and video and communicate through social media.
Demographics say a lot. At the turn of the 21st century, the baby boomers (born 1946-1964) were half the work force, but today in the U.S., millennials and Generation X (born 1965-1979) are roughly one third each. The baby boomers may own most of the retirement funds and wealth, but the new wealth is being created rapidly by the younger generations.
A simple set of statistics says it all. The Forbes top 5 U.S. companies by revenue are Walmart, Exxon, Chevron, Berkshire Hathaway and Apple. Walmart employs over 2.1 million employees, with revenue just under $485 billion, but profits of $16 billion with a market cap of $265 billion. Apple, with only 80,000 employees, had double Walmart’s profits of $39 billion and a market capitalization of $725 billion, larger than Walmart and Exxon put together. Twitter, with only 3,638 employees or less than 0.2 percent of Walmart’s workforce, is valued at 9.2 percent of Walmart. Facebook, with only 9,200 employees but 1.44 billion users, is valued at 86 percent of Walmart.
In fact, if it wasn’t for the fact that Silicon Valley is booming in terms of wealth creation, California would be suffering from the economic effects of the worst drought in years. But at $2.3 trillion, California is growing at 2.8 percent per annum, faster than U.S. real gross domestic product growth of 2.2 percent in 2014. The Western Pacific states of Oregon and Washington are growing faster at 3.6 percent and 3 percent respectively, thanks to growing trade and services from the boom in technology.
Two things stand out in the Digital Disruption ― speed and scale. The speed and scale of the digital transformation is so fast and so wide and deep that we are all having problems valuing what it means ― which is why we have a tech bubble in the making.
It is quite normal for us to accept that Silicon Valley in California is the world leader in digital change, but what was eye-opening as I dug into the data is that the next waves are already happening in China and India. This has mind-boggling implications on a geopolitical basis, especially for smaller economies, such as Malaysia, Hong Kong or Thailand.
What struck me from delving into the pattern of growth in the Internet Revolution is the speed and scale of change in China and India. Who would have expected even five years ago that four of the top 15 global public Internet companies, ranked by market capitalization would be Chinese (Alibaba, Tencent, Baidu and JD.com) with a combined value of $542 billion or 22.4 percent of the total market valuation of $2.4 trillion of these 15 companies as of May 2015.
The reason for this valuation is the scale and speed of the Chinese transformation, already overtaking the world leader, the U.S.A. The rate of Internet penetration is over 80 percent for the U.S., only 40 percent in China and 20 percent in India. But China already has more Internet users (618 million), double the U.S. population and its growth in smartphones is double (21 percent) that of the U.S. (9 percent).
Although incomes in China and India are far lower than the U.S., Chinese and Indian millennials (for that matter, millennials in all emerging markets) are beginning to spend more time on their smartphones than the advanced countries.
There are two implications from this broad trend, which the Chinese Internet platforms like Alibaba and Tencent are beginning to exploit. The first is the ease and convenience of buying, selling and paying using the smartphone ― an all-service tool. Partly because of regulation, the U.S. leaders such as eBay, Amazon and Facebook are still in their core areas of strength, but Alibaba and WeChat (part of Tencent) have developed ecosystems that are simultaneously social networks, chatrooms, trading and investing platforms combined.
When I lost my Blackberry, MacBook and camera recently in Latin America, I was staggered that using WeChat on iPhone, I could go on video and instantly chat with friends across half the world for free. My only constraints were the battery on my iPhone and that I had not set up to get funds transferred in case of need.
The second implication is that traditional service providers are way behind in this technology. My credit card companies are still on outdated phone banking, which meant that in order to report lost cards, I was frantically trying to Press 1, Press 2 and Press self-destruct! These companies are at least two generations behind in customer service technology.
My conclusion from this survey of the Internet Revolution is that the disruption from technology on conventional businesses is yet incomplete. In the 1990s, the Internet changed the music, photography, book sales and video rental businesses. Today, we book airline and hotel travel with the web. But with the arrival of the iPad and iPhone, health care, finance, investing, education and social communications are being combined into one gadget (the cellular phone) to do all what we had to go to different companies for different services and solutions.
This disruption is happening very fast in China and India, because these late-comers have no preconceived legacy ideas on what cannot be done with technology. If China is currently going through its tech bubble, watch out for the next tech bubble in India.
Those who think only in terms of risks think that bubbles are to be feared. I have come to realize that the animal spirits in us change the game through excesses. But those who learn from their mistakes will create the new.
Silicon Valley is not a place, but a mindset ― nothing ventured, nothing gained. That mindset is truly the New Digital Transformation.
Watch this space in Asia.
Andrew Sheng comments on global trends from an Asian angle. ― Ed.
(Asia News Network)
