“Turning the Future into Revenue” – a Software-Perspective Review

By Ed Carroll, Agilis Solutions

Glen Hiemstra, the futurist who saw clearly enough to nab the Futurist.com Internet domain name in 1996, recently published a book titled Turning the Future into Revenue, published by John Wiley & Sons, New Jersey, 2006.

I found the book thought-provoking and wondered how many others have thought about the long-term vision for their organization. In his book, Hiemstra challenges the traditional view of strategic planning, raising this somewhat arcane process to be a crucial ingredient toward real corporate growth and success. (Throughout this article, I reference quotes and paraphrases from the book. Those are indicated as indented paragraphs, to set them off from my own commentary.)

“The absence of strategy is fine, if you don’t care where you are going.” (Alvin Toffler, n.d.)

There are a number of associations (including the SAO), organizations, service providers and consultants ready to encourage entrepreneurs to start new companies, or move their companies to Oregon, and then (as if by drinking the water) watch them grow into large successful enterprises. But in the day-to-day battle to keep a business alive, let alone growing, who has time to worry about the future; especially the long-term future? How many executives have actually sat down and planned out what their company might be doing in 20 years? For as Hiemstra points out, 20 years is the long-term number to be thinking about.

“A typical formal long-range or strategic planning exercise at a large company is a two-day retreat (with a nice golf course near by) once a year.”

At small companies (particularly start-ups) the subject is lucky to get any mention at all in casual conversation over pizza and beer late some Friday afternoon. Any planning and strategy sessions are more likely focused at the next funding cycle or the revenue projections and budgets for the next year, and rarely beyond the exit strategy.

“If you don’t develop a strategy of your own, you become a part of someone else’s strategy…,” (Alvin Toffler, n.d.)

Hiemstra describes long-range planning as:

“The image of the future in any enterprise – whether that image be the future that you expect and are getting ready for, the future that you fear and are attempting to avoid, or the future that you prefer and are trying to create – is the most potent leverage point for change in the enterprise.”

In his book, Hiemstra defines a number of very powerful movements, trends or waves that could have serious impacts on the software industry. I thought it would be a useful exercise to apply these foresights to the vagaries of the software industry and see where we might end up someday in the future.

The revolution

“Understanding the nature of revolution, the lessons we might learn, and the probable course of the next 25 years, is the first step in turning the future into revenue.”

“At the start of the second industrial revolution (in 1900) most U.S. workers were farmers and ranchers. The next largest category was live-in household servants. What changed in the years from 1890-1920? X-rays, use of electricity, the movie camera, radio, telephones, the automobile airplanes, Einstein calculated that E=MC², and war was waged on a world-wide scale.”

“We are 35 years into the digital-biological-nanotech revolution, which can be precisely pinpointed to having begun in 1971 when Intel sold its first micro processor, the 4004. It accelerated with genetic engineering, fiber optics, the evolution of the Internet, and finally the beginning of nanotechnology developments. … If this revolution happens like the last one, then the most fundamental changes are just beginning and will occur over the next two decades.”

How can we profit from demographic tidal wave shifts?

The aging population – Today 1 in 8 persons in the U.S. are over the age of 65 (36 million); by 2025, 25% of the population will be over 65 (almost 80 million people). As the population ages, buying trends shift and new opportunities open up. The baby boom generation is predicted to be:

• Much less likely to be ill or disabled than previous generations.
  
• More educated and more technologically savvy.
  
• Less likely to be poor – owning 70% of the assets and generating 40% of the national income.
  
• More achievement oriented and more adventurous.

Can your software product take advantage of an older and more affluent population? These predictions should be good news for those whose software provides solutions for the pharmaceutical, healthcare, insurance, investment or travel industries.

What about indirect influences? An aging population may mean a declining local human resource pool. Perhaps we should think about encouraging that old programmer (anyone over age 45) to stick around a little longer?

The immigrant nation – In 2000, 10.4% of the U.S. population was foreign born, up from 7.9% in 1990. As people immigrate to new regions, they tend to migrate to the cities. In the U.S. 54% of the foreign born inhabitants live in 9 metro areas. Migrations often follow opportunity; witness the Islamic Diaspora into Western Europe and the economic growth of China and India. Work is shifting around the globe.

Opportunities to take advantage of available, well-educated and inexpensive workers can make a significant difference in the success of a new product launch during times of local labor shortages. And of course economic development in areas such as China, India, etc, means potentially more new customers. As David Chen of OVP Ventures says, “What’s your China strategy?”

The digital native – There is an entire generation of adults (those born after 1980) who have never known a time without computers; not to mention TV, CDs, iPods, cell phones, etc. These are the Digital Natives – born to digital technology and devices. And what will these Digital Natives be doing online in 10 years, beyond what they do today: communicating, sharing, buying, selling, trading, creating, dating…?

Does your software function on a PDA with a 2-inch screen, integrate streaming audio from the Internet, or transmit across both WiFi and cellular networks? The Digital Native expects it to just do it out of the box (and he doesn’t want to pay extra for it).

How can we profit from five key technology trends?

Nanotechnology – (Carbon 60 – Buckyballs (aka., Buckminster Fullerenes, or just Fullerenes) are improving products across the board from spill proof / wrinkle proof textiles to anti-microbial treatment to advances in computing. Nanotubes are reportedly ultra strong (100 times stronger then steel and 1/6^th the weight), fire proof, conduct electricity, insulate against electricity, glow, dissipate heat, and can be loaded with other molecules.

As nanotechnology advances, the obvious impact to the software industry will be continued growth in system memory, storage and throughput at ever-shrinking physical size. As size shrinks and capability grows, expect computing applications of greater complexity to become even more mobile.

Biology – The complexity of the human genome has led to intense research supported by vast and complex databases. Advances in Informatics, in combination with continued research in genomics, proteomics, and systems biology should provide huge opportunities to advance medical practice - perhaps even moving upstream from treating disease after it occurs, to anticipating or preventing health problems in ways that are personalized to the individual.

Online medical advice and advanced AI tools to aid in diagnoses are pushing the envelope in this direction even today.

Ubiquitous Internet – In 2005, 27% of U.S. gift purchases were made online, and laptop sales surpassed desktop sales.

The enabling capacity of high speed broadband technologies such as fiber optic cable, WiFi, and WiMax networks are fueling highly interactive applications (Blogs, RSS, Wikis, VOD, etc.). Broadband speed, capacity, coverage and access are expected to grow, continuing to fuel new applications and growth in the software industry. New application ideas are taking advantage of this expected growth in network capacity to automate traditionally manual processes today: RFID, integrated GPS, and location-sensitive computing are just a few examples. As the network expands, the growing awareness of the vulnerability of data is forcing significant advances in security applications, devices and protocols, as whole new levels of trusted computing unfold.

The increase in the amount of circuits and data that can be packed into ever-smaller computer chips is fueling a drive to embed higher level functions onto the chip itself. Expect to see more automation of traditionally human clerical activity (ATMs, POS, etc.) and robotics to grow significantly into every day occurrences.

How can we profit by increasing the knowledge content of our products / services?

Rapid innovation and technology convergence – The ‘S’ curve modeling technological innovation describes how enabling technologies build slowly (to about 10% market penetration) before the market quickly expands (to about 50% penetration) around the enabler.

For example, the Internet grew slowly from the mid-’80s to the mid-’90s until it reached a point of acceptance. Then, in the mid-’90s the market expanded significantly with new products and services. True to the model, the Internet market grew too quickly and a correction occurred, but it did not die. In fact, the World Wide Web continued to grow and now, as broadband becomes more ubiquitous, that growth is expected to accelerate.

Increasing knowledge value – Products in general are becoming smarter. Consider the complexity (and computing capacity) of today’s hybrid cars, in comparison to autos of the 1970s. Competitive advantage resides in the amount of knowledge that went into the product, is contained within it, and is perceived by the customer.

For example, the computer in the hybrid auto makes continuous calculations to optimize fuel performance, shutting down the gas engine, governing the speed of the electrical motors, starting the gas engine just in time to add torque as the car climbs a hill, and balancing between performance and fuel economy. The knowledge added to products typically comes in the form of software, perhaps embedded within the product, or interfacing to other products. The key is to put more intelligence into your product or service than your competition.

The spending wave wanes – Macro economic studies show that the ages in which most people spend the most money are in the years between 42 and 50. Correlate that fact with the current ages of the baby boomers and it is not too hard to visualize that we are quickly approaching the tail end of a spending wave. Even as the national economy sank into recession from 2001-2004 consumer spending stayed high due to those in the tail end of the baby boom. The baby boom spending wave should come to an end somewhere around 2010, and the generation that follows is smaller by many millions of people.

What age demographic is your product targeted at, how large is that age group, and where are they on the spending wave? Even if your customers are other businesses, the impact might still be felt by you if their customer base stops spending money.

Globalization – New to economic history is the world-wide blending of economies due to the conversion of large local economies into market-based economies (i.e., the former Soviet Union and China) and the breakdown of economic trade barriers (i.e., the establishment of the European Union). Fundamental to globalization is outsourcing as the source of high-skilled labor becomes placeless due to the growth of the Internet-broadband infrastructure.

Opportunities exist bi-directionally for software products. The opening of large local economies and the growth of the Internet into developing regions opens up vast numbers of new prospective customers. Lower labor cost accessible through improved communications networks offers the opportunity to lower cost-of-goods-sold for software product developers.

China, India – “The Chinese are eager now to be a leader in the global economy, not a mere entrant. They are racing ahead technologically, still building dams by human labor with wheelbarrows, while simultaneously developing global airlines, computer software, and space agriculture. A watch list for the future as reported by the Chinese:

• Breakthroughs in agriculture – from hybrid-yield crops to genetically modified “space agriculture.”
  
• Nanotechnology – Although the Chinese lag behind today, they are pouring tremendous amounts of money into research and development.
  
• Information technology – China today manufactures 70% of all desktop computers. Their efforts to solve how to handle the three-dimensional Chinese language is likely to produce breakthroughs in three-dimensional computing. The huge user base in China alone is driving significant demand for both the next generation cell phones and computers. And just as in the U.S., there is a convergence happening of computing and telecommunications technologies.

Thomas Friedman describes in his book, The World is Flat, story after story of how India is becoming the model for placelessness. Information and intellectual capital know no place, need no place, because of technology.

We can choose to either participate in the growth of the Chinese and Indian economies or wait for them to become the drivers of our economy. Much as Europe today is a mutually beneficial trading partner with the U.S., if we choose wisely, we and the Asian economies can all grow.

How can we profit from the next energy wave?

“All signs point toward nothing less than a re-invention of our energy future within the next quarter century or so. The innovations and alternatives that will be needed will probably represent the largest business revenue opportunity ever.”

The shrinking availability of oil coincides nicely with the rising importance of global warming. There is much about the Green and Sustainable Energy movements that could go a long way toward also solving the looming energy crisis, and many of the alternatives involve software. It is software that will define a smarter electrical grid, software that will drive advances in solar panel efficiencies, and software that will optimize power use to minimize greenhouse gas fuel consumption (aka, hybrid gas/electric vehicles).

Conclusion – don’t close your eyes and run naked through the streets
On one hand, there are some trends happening that point to the potential of a significant economic downturn within the next five years: the wane of the baby boom spending wave, the aging of the world population, and pressure on wages due to globalization. On the other hand, there are perhaps many greater opportunities that provide great revenue gains individually, locally or regionally, if not globally. The next energy wave, new markets in China and India, adding knowledge value to products and services are all about software. The expanding World Wide Web, advances in biosciences, and nanotechnology, the increasing digitalization of subsequent generations and the robustness of the aging population all provide expanding opportunities for the software industry. This is not to say that anyone should close their eyes and run naked through the streets. The speed of change over the next 20 years will likely knock the socks off of many in my generation. And there will be significant social, political and economic challenges to be resolved as the future unfolds. But for those who can keep an open mind, continue to add knowledge value into their products or services, and stay engaged in the advances, great opportunity is possibly coming their way.

I would like to thank Glen Hiemstra for opening my eyes to the opportunities along my way. And I encourage anyone who found this article even remotely interesting to read Glen’s book.

About the author
Ed Carroll has been building software products for more than 25 years, with particular expertise in automating economic analyses, decision support and supply-chain management processes. He has provided strategic technology leadership in roles such as the vice president of engineering for Egghead.com, director of technology at Nike and director of software engineering at Boeing. He can be reached at EdCarroll@AgilisSolutions.com.