Tuesday, September 13, 2011

Google Chief Economist: "Micromultinationals Will Run the World"

By Google's Hal Varian for Foreign Policy's "The Future is Now" issue:
We live in an age of combinatorial innovation. There have been other such periods before: In the 19th century, standardized mechanical parts -- wheels, pulleys, belts, and gears -- were combined and recombined to create new innovations. In the 20th century, the components were internal combustion engines, electricity, electronics, and (eventually) microelectronic chips. 

Today, a substantial amount of software development on the web involves connecting standardized components in novel ways. The Linux operating system, the Apache web server, the MySQL database, and the Python programming language are prominent examples: the LAMP components that serve as basic building blocks for much of the web. Once your application is developed, the cloud computing model offered by Amazon, Google, Microsoft, and others changes fixed costs for data centers into variable costs for data services, lowering barriers to entry and increasing the pace of innovation.

Just as the mechanical innovations of the 19th century led to dramatic changes in our way of life, the still-evolving computing and communication innovations of the early 21st century will have a profound impact on the world's economy and culture. For example, even the smallest company can now afford a communications and computational infrastructure that would have been the envy of a large corporation 15 years ago. If the late 20th century was the age of the multinational company, the early 21st will be the age of the micromultinational: small companies that operate globally.

Silicon Valley today seems to be overflowing with these enterprises. They can already draw on email, chat, social networks, wikis, voice-over-Internet protocol, and cloud computing -- all available for free on the web -- to provide their communications and computational infrastructure. They can exploit comparative advantage due to global variation in knowledge, skills, and wage rates. They can work around the world and around the clock to develop software, applications, and web services by using standardized components. Innovation has always been stimulated by international trade, and now trade in knowledge and skills can take place far more easily than ever before.

You have never heard of most micromultinationals and likely never will; like other small firms, most will go out of business or be acquired by larger organizations. But some, like Skype (from Estonia) or Rovio, the maker of the popular mobile-device game Angry Birds (from Finland), have become household names. Even the software components themselves are global creations: Linux started in Finland, Apache in the United States, MySQL in Sweden, and Python in the Netherlands.

The technological advances that have created this sea change in the virtual world are in the process of transforming the physical world in similar ways. Industrial robots have been around for decades, but they have always been big and expensive, so much so that only large companies could afford them. But advances in information technology have changed all that. It is now possible to make far cheaper robotic devices, which in turn means that physical services provided by robotics will get substantially cheaper.

A simple way to forecast the future is to look at what rich people have today; middle-income people will have something equivalent in 10 years, and poor people will have it in an additional decade....MORE
Also at The Future is Now:
Megatrends That Weren't
The Shape of the Global Economy Will Fundamentally Change
The Americas, Not the Middle East, Will Be the World Capital of Energy