For a generation before we thought of “technology companies” as Google and Facebook, there was a long era of IT, or “information technology.” During this era, technology was an unglamorous industry that made businesses more effective. Consumers didn’t touch it.
I believe that machine learning and AI are bringing us to a second IT phase, where the most exciting developments will become powerful tools for businesses but, in most cases, little more than promise for consumers.
Someday the wheel will turn again and we will enter a second pure technology era where breakthrough new consumer services will emerge. But we need to walk before we run—and walking means an era of IT before we get to the next wave of what we have come to know as tech.
The tools for managing data now available to businesses have improved at a staggering pace.
Amazon’s Redshift for data storage, visualization tools like Periscope, and machine learning toolkits like Google’s TensorFlow allow businesses—even small ones—to store, analyze and make decisions that weren’t possible before without massive capital investment. Amazon, Google, IBM, Microsoft and Salesforce are in an all-out, multi-front war to help businesses optimize themselves in amazing ways.
Ten years ago, I worked for a major credit card company on a consulting project analyzing millions of rows of credit card data. The tools we had then versus the tools that are widely available now are night and day. Today, I can do the same type of analysis my old consulting firm charged hundreds of thousands if not millions of dollars for in just a few moments.
This isn’t a new story. Companies have been telling versions of this narrative of displacement around everything from medicine to finance for a generation. But in 2017, these tools are available and having practical impact to an unprecedented degree.
Waiting for Prime Time
If you had waited with bated breath for pure direct-to-consumer technology companies at the beginning of the first IT wave, you would have turned blue long before you were ultimately vindicated. I am pretty certain we find ourselves once again in the same position.
It is one thing for businesses to get leverage in decision-making through access to data, compute and good algorithms. It is quite another for those technologies to be fully developed enough to enter prime-time consumer use.
Cars are perhaps the most obvious example. Technology in cars will soon be able to drive us—in some conditions—from point A to B and help keep us safer. The coupling of man and machine is great. But I would strongly argue we are still eons away from cars reliably and consistently driving themselves without human operators. There are entire areas ranging from pedestrian judgment and fleet management that are still no more than theoretical exercises.
Cars are just one example. Voice recognition is mildly passable most of the time. Some of the translation work Google is doing is impressive. Recently I have been blown away by some of the simple but powerful applications taking hold in Google Photos. And, it is impressive that cars on the highway can drive themselves in certain situations.
But the reality is that none of these applications transform consumers’ experience. Most are, for now, parlor tricks and slight improvements.
There is nothing wrong with this. It is necessary and good for people to be working on these things. But we need to recognize that tools good enough to couple with human managers and operators aren’t necessarily good enough to directly interface with users.
What It Means
The current IT wave is going to have implications for which jobs technology displaces as well as which businesses will become most valuable. Just as computers eliminated jobs like telephone operators and typists, this wave of IT is going to eliminate white-collar analysts and middle manager jobs.
The reason analyst jobs vanish should be pretty clear. A single analyst empowered with an enormous amount of data and huge amounts of compute can do the work of many less-empowered people. I feel very directly the efficiency gain in the businesses I have operated in over the last several years. You don’t need as many people working to get the same (or better) answers.
Less obviously, you also need far fewer middle managers. As companies get better metric-ed and more collaborative, machines and data can take care of the performance tracking and improvement functions middle managers performed. You still need people to coach and develop, but you just don’t need as many middle managers to execute some tasks as you once did.
Moreover, with huge amounts of data and compute at command, the difference between good and great analysts and managers will become even starker, stoking competition. The best will do better, the rest will struggle.
The impact of this wave of IT on the white-collar workforce will likely come more swiftly and dramatically than it will for the millions of professional drivers trying to figure out when their jobs will be replaced by self-driving cars. The white-collar displacement is happening now.
Fewer Windfalls
The new wave of IT will also shift tech valuations. Plenty of big and valuable businesses were built in the last IT era, including IBM and Oracle. But they were far less valuable than the pure direct-to-consumer technology plays like Apple, Google and Facebook.
The reason for this comes down to a few key facts. First, businesses tend to have more negotiating power than consumers. In an IT era, technology companies sell to other businesses, which usually have more negotiating power against them than consumers. That means that, ultimately, it is harder to extract a ton of value out of them. That is why the biggest consumer technology companies are an order of magnitude bigger than the SaaS businesses.
The other factor is that IT has trouble maintaining as much differentiation as pure consumer tech. Data or IP advantages are hard to sustain long-term. Amazon Web Services has a staggering lead, but it is possible to compel companies to move to the Google or IBM or Microsoft clouds. A good company working hard can usually replicate most of what another company offers in a B2B setting.
Not so with pure technology, where the return on scale is greater. Part of this has to do with the fact that businesses usually own their own data and plug into technology for just the technology. Consumer tech companies are better able to use access to data as a competitive advantage.
The upshot here is that I expect big advances, but the financial windfalls for the current new technology companies will be smaller for a period than they have been in the last decade.
There is a lot to be optimistic about around this next IT wave. Companies are going to get more efficient and more profitable by using technology well. Pricing, advertising targeting, balancing elements of supply and demand and all the things that lots of data and processing can offer are going to provide wins. Traditional companies will also get leaner and more efficient.
But employees and companies will face big challenges in this IT age. Until we get to the next pure tech era, employees will see more competition for fewer jobs. While technology companies will benefit from the growth, they won’t garner the power or financial upside they had in the last direct-to-consumer age.