Democratization and disintermediation: disruptive technologies and the future of making things: democratization and disintermediation have already reshaped major industries; now they're changing manufacturing.
Software Eats the World
In 2011, venture capitalist Mark Andreessen declared that "software is eating the world." Andreessen was in a position to know--he helped create Mosaic, the first browser technology on the World Wide Web, and later cofounded Netscape.
Andreessen's comment continues to be timely because it describes a repeated phenomenon. Software has radically changed technologies, industries, and the business models associated with them. There is a pattern in how software repeatedly devours markets, and that pattern can inform how we look at the future of making things.
It's useful then to go back and look more closely at the historical pattern. Let's begin with computing. PARC developed the Alto personal workstation, the first personal computer (PC) with a graphical user interface, which famously inspired Steve Jobs to create the Macintosh after he saw it during a visit to PARC that was arranged in return for Xerox buying a large stake in Apple.
But that was just one point in a long process of democratizing computing that began with companies like DEC, Data General, and Wang moving minicomputers out of the hands of the IT department and giving them to engineers and financial analysts. These companies gave nonexperts direct access to computers. PCs were the next giant step in the mass computing process, putting computers in the hands of everyone. This revolution wasn't just about creating computing hardware at a lower cost; it was driven by software--easy-to-use applications that allowed everyday people to access the power of computers for word processing, spreadsheets, and desktop publishing. Software ate minicomputing and enabled personal computing. It democratized access to computing and allowed everyday people to create, communicate, connect, and consume in very personal ways.
The next industry to be eaten by software was publishing. The big newspapers--The New York Times, The Wall Street Journal--originally felt their role was to select a small number of experts to report the news and provide "important" opinions to consumers of the news. But then blogging emerged, allowing everyday people to share their opinions broadly. The big, centralized organizations that controlled the means of access--the printing presses and the distribution networks--said, "No, people really don't want that. That's crazy." But people actually do want it. Many want to publish their opinions and many want to hear from a variety of voices. WordPress.com, a popular blog-hosting site, grew to 4 billion page views a month in five years.
This type of radical change creates enormous challenges and big opportunities. As the shift in publishing has shown us, one of the most challenging elements of disruptive innovation is the change in how value is delivered and consumed, often leading to the creation of new services and business models that weren't available or even possible before. This can be the hardest kind of change for an industrial organization. It can be hard for a big industrial organization to even see it coming. Look at DEC, for instance. There was a significant amount of research in personal computers at DEC, but Ken Olsen, DEC'S founder, stopped that work because, he said, "There is no reason for any individual to have a computer in his home." He couldn't envision all the new, creative ways people would use PCs, from publishing newsletters to blogging, from editing home movies to posting how-to videos on YouTube, from drawing cartoons to 3D modeling and printing.
Even Olsen, someone who disrupted an industry, could not see the next step coming. As a result, DEC got bought by Compaq, Compaq got eaten by HP, and HP decided it needed to be two different companies. This trend of taking a capability that had been reserved for experts and empowering people to access that capability is often what software does when it eats an industry. And it's very hard to see it when you're inside the industry that's being eaten.
Democratization and Disintermediation
Both of these developments--the move to personal computers and the rise of bloggers--illustrate how software eats the world. In both of these cases, technology innovation enabled two powerful forces to take hold: democratization and disintermediation.
Democratization has two sides to it, creation and consumption. The rise of bloggers shows us that many of us want to share our voice. We want to create. WordPress and Blogger and similar software tools give everyone the power to publish, power that was previously allowed only to experts. The ability to create and have an impact at scale touches an underlying, latent human need. On the other side, people like to consume bespoke products and customized experiences. That's what blogging provides from the reader's point of view. It lets me choose information that's relevant to me, to suit my personal interests and needs.
Disintermediation is about removing traditional barriers to accessing tools and markets, whether they arise from high costs or expert control. In other words, it gives me direct access to the tools of creation, and to the consumers who want to receive my creation. The Internet made this possible at scale. Buyers and sellers across a long tail of interests are able to find each other and conduct business efficiently, both online through virtual marketplaces and in person through smartphones and mobile payments.
The economic effects of these twin forces have proven to be profound. Newspaper advertising revenue grew with the economy until it dropped sharply, driven by the emergence of hundreds of thousands of alternative sources of voices, content, and marketplaces. Traditional players have responded by finding new ways to succeed. The New York Times, the Washington Post, and the Wall Street Journal are still here, but they've been pressed to radically alter their approach to the market, and are still finding ways to provide value. Those who couldn't make the shift aren't here anymore.
Bloggers haven't replaced expert voices; rather, the newspapers have learned how to create a blended capability that accommodates both kinds of creation. That's starting to happen in other content industries as well. For instance, in education Khan Academy is threatening to disintermediate large education institutions that control the means of production and the means of access. Universities have responded with MOOCs, Massive Open Online Courses, which allow thousands of students to access their professors and their courses, often for free. Recently we have seen the emergence of hybrid models in which teachers use digital content from Khan Academy to enrich the classroom experience and reinforce classroom lessons at home.
The Future of Making Things
Now let's look at the next industry to be changed forever by democratization and disintermediation--manufacturing. This is not just about the technologies in manufacturing; we are seeing radical changes in the entire value chain around how products are designed, funded, sourced, manufactured, and distributed.
Many of these changes are being driven by new technologies in 3D printing, robotics, and electronics. We continue to see important advances in the types of materials and capabilities in 3D printing, which will enable applications beyond prototyping and into industrial use. We see advances in robotics, especially in human-robot interaction. For instance, Baxter is a robot that doesn't need programming (Figure 1). You teach it how to do something and it adapts as a human does, through vision systems, and can operate safely alongside people. We see advances in low-cost computers like Arduino and Raspberry Pi, which offer toolkits that allow people to create devices that interact through the Internet of Things.
Why is 3D printing so popular? Why has Arduino taken off? What is the nerve that these things strike in people? The force driving the adoption of these technologies is the same one that drove the rise of personal computing and blogging: this idea of allowing nonexperts to access expert capabilities. With a 3D printer, if I can imagine it and draw it on a CAD tool, 1 can ship my design off to be sliced and printed. You can't do that today with a CNC mill; you need a manufacturing engineer in the middle to quote the job, design the tooling, and plan the parts sequencing for manufacturing. But soon software will eat manufacturing engineering. I, as a creator or designer, will be able to imagine something and make it, and I won't need to be an expert, in materials or manufacturing or machine maintenance.
William Gibson, a pioneering science fiction author, once said, "The future is already here--it's just not very evenly distributed." That's true for manufacturing; the revolution in moving capability to nonexperts is happening at the imagine, design, make, and ship stages of the product development value chain (Figure 2) through simpler CAD tools, 3D printing, and outsourced logistics services from UPS and FedEx. Now we are starting to see similar changes occurring in funding and sourcing.
Typically, in the conventional model, there were two sources of funding for new product ideas. Individuals working in companies would go to their manager with a proposal for investment that would be evaluated and then approved. Alternatively, someone could decide to start a new company and go to a venture capitalist for funding. The problem is that not all good ideas can create billion-dollar companies, which is the objective of the venture capital approach. A creator may have an idea for customized purses. It's not a billion-dollar company, but it's a $4 million lifestyle business. It can keep the founder well employed, maybe employ a few more people, and meet a set of needs for customers. Those kinds of businesses are hard to get funded through VCs, and it's even hard to get a bank loan without a previous track record or operating history.
So to solve this problem, funding is now being disintermediated. Using platforms like Kickstarter, companies and individuals create campaigns to get customers to pay in advance for products that appeal to them, and then they use the funds as working capital to create and deliver the products. Over the past three years, according to Kickstarter's annual reports, 8.2 million people have pledged $1.3 billion on Kickstarter to fund more than 60,000 projects. This is a completely new way of funding a product. Most companies don't get to go to their customers and say, "Would you mind giving us a little money so we can ship you a product next year?"
Why do people take the risk to invest? We do it for a couple of reasons. We like bespoke, customized things. We want to support new ideas and see them happen. We don't want to delegate our tastes to expert buyers and financiers to make decisions on our behalf. The success of Kickstarter is proving that millions of us want to participate in this type of funding model.
What Kickstarter, Indiegogo, and other crowdfunding platforms are doing is both disintermediating and democratizing. Everyone around the world can participate, and many funded campaigns are not good ideas. But the outcome is similar to a VC portfolio: maybe only 1 out of 10 ideas works, but the risk is distributed over a large pool of potential investors. And there are going to be many more good ideas that get funded that otherwise wouldn't.
We are also seeing significant advances in the virtualization of sourcing. We see companies like Dragon fueling the hardware revolution. It's tremendously hard to build a supply chain. But Dragon is an expert on manufacturing in China. If someone has an idea and wants to make 1,000 units, Dragon will help assemble that supply chain, from manufacturing to drop-shipping the final product at scale.
Making the Future
Pebble, which was introduced in 2012, three years before Apple iWatch, is a smart watch. It was initially funded on Kickstarter; the creators were looking for $100,000, and instead secured $10 million and made a company. Pebble is a great success story, but it's the exception rather than the norm. It's relatively easy to come up with an idea, put up a website, create a video, get people excited, and collect some money. But it can be hard to follow through. In a 2012 article, CNNMoney reported that 84 percent of the top 50 most-funded campaigns on Kickstarter didn't ship on time (Pepitone 2012). So we still have a lot of work to do across the product development process to make it easy enough for inexperienced creators to be successful.
One of the key areas in product development that needs to be addressed is simplifying 3D modeling tools. We are seeing new tools like Tinkercad, which is CAD for the non-expert. But we can do more to enable nonengineers to create feasible models. For example, anyone could use a CAD tool to design a nice-looking chair and have it 3D printed, but the chair might not be structurally sound; it could break if someone sat on it. At PARC, we are working on software that verifies the design, including using geometric reasoning to confirm structural properties, making sure the chair does what chairs are meant to do.
Since the materials for 3D printing are still limited, we are also working on creating software that can turn CNC mills into virtual printers. Currently, using a CNC mill is a highly manual process, requiring expertise to take a 3D model and figure out the right tools, toolpaths, and fixturing required to create the part. At PARC, we are developing a totally automated, computer-aided process-planning system called uFab that allows small product firms and large industrial companies to go from a CAD model to an online marketplace of machine shops, where they can receive automated quotes in a matter of hours. (1) A customer posts a design to the marketplace and the uFab software looks at the design, executes an automatic bidding routine across shops that have the capabilities to manufacture it, and returns the bid. Now the customer knows which shop can make the part and at what price, without needing to do the manual research and trial-and-error required in today's fragmented manufacturing marketplace.
Implications for the Future
We're at the start of a new S curve in how things are made, and we're about to see a radical change in these underlying trends toward democratization and disintermediation. Imagine if only 1 percent of the people in the world wanted to make things for all of us who want personalized, customized goods. The scale of this change would be enormous. The entire product development and manufacturing value chain will be transformed.
At its core, this transition will also deliver radical capabilities that could change how companies are organized and even fundamentally challenge the reasons corporations exist at all. We can look at a Hollywood feature film as an example of a completely different way to organize production. The Avengers, for instance, cost $220 million to make. That's a company of all kinds of different people who come together to make one thing. The directors, the actors, the crafts people, the key grips, the cameramen, and hundreds of other workers don't work together on every film. They're assembled as a team to make one product, which then goes to market through an established distribution chain.
If this model can work at the scale of a $220 million film production, why couldn't it work for other production efforts? We can absolutely create this type of model for making other types of products, allowing creators to focus on the design of the product with the assistance of intelligent design software tools and then outsource everything else to companies like Dragon. Stories about someone coming up with an idea for a new product, testing and building demand on Kickstarter, assembling the value chain, producing the product, and then moving on to the next idea, creating a series of virtual businesses in the Hollywood production model, will become the norm. This future is coming faster than you may think.
Success in this future will require fundamentally rethinking how we approach the market. The New York Times didn't go away, but it redefined its value. It thought about how to enable more people to have a voice and how to allow customers to create personalized experiences from different voices. That's the change we see coming in manufacturing, and that's what we are helping to create at PARC. We have this vision of the "MakeNet" (Figure 3), a network that connects creators, funders, and production workers across the product development value chain so they can come together to work on projects in a seamless, flexible way. We believe the MakeNet will create new forms of economic value for the physical world, on par with the Internet's impact in the digital world.
This change will require government support and new thinking around education, regulation, and economic development. We need to train people to operate high-tech manufacturing equipment, but perhaps more importantly, we need to teach and encourage our youth to be creative in new ways. In the future, they'll need to be able to use software tools to create new products, and then package them into an online portfolio to provide proof of their skills that will be essential in the Hollywood production model of employment.
Regulations will need to be adapted to enable experimentation in both new technologies and in funding. It's a balancing act between enabling and protecting people. Until just recently only accredited investors could invest in new companies. With the recent SEC ruling on Title IV in the JOBS Act allowing Regulation A+ offerings, nonaccredited investors finally have an opportunity to invest in startups, not just Kickstarter campaigns. But we need to make sure there is transparency in these new markets so people can make informed decisions.
We also need to rethink how we look at economic development and how we measure and invest in our economy. Today, we talk about the services economy and the manufacturing economy, with the belief that value creation is radically different between these two sectors. This distinction is becoming obsolete. Is Dragon, which helps people assemble value chains to deliver a product, a services company or a manufacturing company? What about all the value being created in the sharing economy through companies like Airbnb? How does that get counted, measured, and incentivized? How do we encourage more companies to offer these kinds of services, and not just leave the creation and business benefits to a relatively small handful of large organizations?
This is important in terms of economic development, because if we do this right, then we will bring manufacturing jobs back to this country. Addressing this issue, a recent National Academy of Engineering panel prepared an in-depth review of the changes that are occurring in how value is created and offered a strong set of recommendations regarding what we as a society--business, government, and citizens--need to do to help capture value in the future (Donofrio and Whitefoot 2015). The panel outlined needed changes in education, training, government investment, and public-private partnerships to support value creation in the evolving manufacturing industry.
As in the earlier waves of democratized creation and mass customization, we now have the opportunity to support the emergence of new types of companies that combine design and digital manufacturing to create on-demand, customized products ranging from clothing to furniture. When products are created to order and not en masse, then the traditional advantages of offshore low-cost manufacturing are negated, especially when considering the costs and carbon footprint of shipping. Rather than low cost, value in the age of collaborative digital manufacturing will come from design, personalization, and speed of production.
We have a timely opportunity to work together to foster the right combination of human, technological, financial, and regulatory conditions to nurture this impending phase change in how we make things. By examining the impact of democratization and disintermediation in other industries, we can gain new insights into the enabling technologies that will drive the future of manufacturing, and better understand how to harness them to redefine how value is created. The winners in the future will be the organizations that empower millions of people to be creators in a vast new value network of people, capital, and machines that fulfills their ideas and enables customers to buy them in personalized ways.
Andreessen, M. 2011. Why software is eating the world. The Wall Street Journal, August 20. http://www.wsj.com/articles/ SB 10001424053111903480904576512250915629460
Donofrio, N., and Whitefoot, K. 2015. Making Value for America. National Academy of Engineering, Washington, DC.
Pepitone, J. 2012. Why 84% of Kickstarter's top projects shipped late. CNNMoney, December 18. http://money.cnn.com/2012/ 12/18/technology/innovation/kickstarter-ship-delay/
(1) uFab is a registered trademark of PARC, a Xerox company.
Stephen Hoover is CEO of PARC, a Xerox company. Practicing open innovation since 2002, PARC delivers breakthrough innovations to Xerox's business groups and provides custom R&D services, technology, expertise, and IP to Global 1000 companies, startups, and government agencies. Prior to joining PARC in 2011, Dr. Hoover had global responsibility for Xerox's software and electronic development and previously led the east coast research arm of Xerox. Over his career, he has developed and delivered to the market a variety of intelligent mechatronic systems, web services-enabled smart devices, and software platforms. He earned a PhD from Carnegie Mellon University, where he was a Bell Labs fellow, and a BS from Cornell University, and holds eight patents or patents pending. He was a keynote speaker at IRI's 2015 Annual Meeting in Seattle, Washington. Steve.Hoover@parc.com
Lawrence Lee is Senior Director of Strategy for PARC, where he leads innovation strategy to create new growth options for Xerox and its clients. He also manages PARC's research relationship with Xerox and is responsible for the selection and delivery of high-impact R&D engagements. Previously, he cofounded Zoundry, one of the first social commerce web services, and served as Vice President of Business Development at Mirror Worlds Technologies. He holds an MBA from the Yale School of Management and joint BS degrees from Wharton and the School of Engineering and Applied Science at the University of Pennsylvania. Lawrence.Lee@parc.com
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|Title Annotation:||FEATURE ARTICLE|
|Author:||Hoover, Steve; Lee, Lawrence|
|Date:||Nov 1, 2015|
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