AFTER a week in the Silicon Valley, California last month, I came to the conclusion
that I am a dinosaur. The speed of change from 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 millenials (those born between 1980 and 2000) upload
information mostly on mobile phones, 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 United States, millenials and Gen 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 five U.S. companies by revenue
are Walmart, Exxon, Chevron, Berkshire Hathaway and Apple. Walmart employs over
2.1 million people, with revenue just under US$485 billion, but profits of US$16 billion
with market capitalisation of US$265 billion. Apple, with only 80,000 employees, had
double Walmart profits of US$39 billion and a market capitalisation of US$725 billion,
larger than Walmart and Exxon put together. Twitter, with only 3,638 employees or
less than 0.2% of Walmart workforce, is valued at 9.2% of Walmart. Facebook, with
only 9,200 employees but 1.44 billion users, is valued at 86% 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 US$2.3 trillion, California is growing at 2.8% per annum, faster than
US real gross domestic product growth of 2.2% in 2014. The Western Pacific states
of Oregon and Washington are growing faster at 3.6% and 3% respectively, thanks to
growing trade and services from the boom in technology.
Two things that 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 the Silicon Valley 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 geo-
political 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 out of the top 15 global public Internet companies, ranked by
market capitalisation would be Chinese (Alibaba, Tencent, Baidu and JD.com) with a
combined value of US$542 billion or 22.4% of the total market valuation of US$2.4
trillion of these 15 companies as of May, 2015.
Scale and speed
The reason for this valuation is scale and speed of the Chinese transformation,
already overtaking the world leader, the United States. The rate of Internet
penetration is over 80% for the United States, only 40+% in China and 20+% in India.
But China already has more Internet users (618 million), double the U.S. population
and its growth in smartphones is double (21%) that of the United States (9%).
Although incomes in China and India are far lower than the United States, Chinese
and Indian millenials (for that matter, millenials 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 eco-systems 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 instant chat with
friends across half the world for free. My only constraint was the battery on my
iPhone and that I had not set up to get funds transfer 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 one, Press
two and Press self-destruct! These companies are at least two generations behind in
customer service technology.
Internet Revolution
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 business. Today, we
book airline and hotel travel on the web.
But with the arrival of the iPad and iPhone, healthcare, finance, investing, education
and social communications are being combined into one gadget (the mobile phone) to
do what we have to.
This disruption is happening very fast in China and India, because these late-comers
have no pre-conceived 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 realise 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.
A version of this article appeared in The Star Online, 27 June 2015
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