how do industries evolve - part 2

How and When do New Technologies Become Economically Feasible?

Third Session of MT5009 A/Prof Jeffrey FunkDivision of Engineering and Technology ManagementNational University of SingaporeFor information on other technologies: see http://www.slideshare.net/Funk98/presentations or Exponential Change: What drives it? What does it tell us about the future? http://www.amazon.com/Exponential-Change-drives-about-future-ebook/dp/B00HPSAYEM/ref=sr_1_1?s=digital-text&ie=UTF8&qid=1399871060&sr=1-1&keywords=exponential+change

Some new technologies destroy both an existing economic system and create a new one (Schumpeter, 1942)These technologies provide significantly higher economic value than do old onesenable dramatic improvements in economic productivity and thus living standards (e.g., Solow (1957)create winners and losers at individual, firm, and country levelhave a large impact on our ecological and social environmentOver last 20 years, Apple, Google, Amazon, and Microsoft have enabled creative destructionWhat is the long-term evolutionary process by which opportunities become economically feasible? Many Terms: Technological Discontinuities, Radical or Disruptive Innovations, Creative Destruction

Ask why I want you to understand the process2

Diffusion (and Obsolescence) are the Last Stages of Creative Destruction: What Happens before Diffusion Occurs? What isHappeningHere?

http://www.theatlantic.com/technology/archive/2012/04/the-100-year-march-of-technology-in-1-graph/255573/Real World Examples of Diffusion

What Happens Before Diffusion Starts?How do new technologies become economically feasible?What is the long term evolutionary process by which they become economically feasible?And thus diffuse and cause creative destruction?We can distinguish between economic feasibility and the organizational and regulatory challenges of implementing new technologiesTechnologies (or Systems Composed of Them) that Experience Rapid Improvements are more Likely to Become Economically Feasible than are Slowly Improving Technologies

Rate of ImprovementExtent of Improvement NeededSmall

LargeSlow (e.g., 10%Technologies that Experience Rapid Improvements are more Likely to Become Economically FeasibleNow or Probably Very SoonProbably NeverWithin 5 to 15 Years? Within 5-15 Years?

SessionTechnology1Objectives and overview of course2How do improvements in cost and performance occur? 1) Creating materials that better exploit physical phenomena; 2) Geometrical scaling3What is process by which new technologies become economically feasible?4Future of ICs and Electronic Systems5Sensors, MEMs, and the Internet of Things6Bio-Electronics, DNA Sequencers, and Health Care7Lighting, Lasers, Displays8Human-Computer Interfaces, Wearable Computing9IT and Transportation10Nanotechnology and Superconductivity11Feedback on Group Slides12-13Group Presentations

This is Third Session of MT5009

OutlineSupply and demand curves and economic feasibilityTwo models of technology changeModel of InventionSilicon Valley Model (Improvements in components lead to emergence of new systems)Billion Dollar Startup ClubProblems with over-emphasizing model of invention: Predictions made by MITs Technology ReviewMyths of technology changeS-Curves for performanceSlowdowns in old technologies lead to improvements in new technologiesLearning and Experience CurvesA-U Model

Quantity (Q)Price (P)

qpWhat do Demand and Supply Curves Mean and what do they have to do with Diffusion?

DemandSupply

9What do these curves mean?

What are some problems with last Slide?

What are some problems with last slide?Previous slide assumes performance is unimportantIn reality, performance is importantMarket evaluates products and services in terms of price and a variety of performance dimensionsDifficult to represent multiple dimensions on a two-dimension graph, so most graphs only show price and quantityMany use the term value proposition to capture price and all dimensions of performance

Simple Definition of Value Proposition Value tothe target marketBenefits tothe target market

Price tothe target market

=Relative toA simple and clear statement of what the new technology provides and that the existing technology does not: better performance, features, or price

Such a statement involves performance (including features) and cost

say something about competition between technologies and between products within the technology

Superior Value PropositionsMight involve lower priceHigher performanceSpeed, ease of UseDurability, portabilityMaintainabilityReliability, AestheticsSpecific FeaturesYour projects should consider many aspects of valueBut for this session, lets simplify the discussion and just focus on performance and price

Quantity (Q)Performance (P)

qpIn terms of performance, What do Demand and SupplyCurves Mean and what do they have to do with Diffusion?

SupplyDemand

14What do these curves mean?

Price, Performance, and DemandPrice and performance determine the amount of demand and supplyRising performance often leads to growing demandFalling price often leads to growing demandWhat changes over time and how do these curves look before there is a market (i.e., no commercial production)? When performance is too low?Or when price is too high? How can we represent these dynamics with supply and demand curves?

Quantity (Q)Price (P)

qpDiffusion often starts in segments/users that are willing to pay more for products and services than are other segments/users

Demand CurveSupply Curve

Typical movement ofsupply curve over time

Typical movement of demandcurve over time

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Quantity (Q)Price (P)qpMaximum Threshold of Price: the maximum price that the market will pay for a new technology

Demand CurveSupply Curve

Typical movement ofsupply curve over time

17What do these curves mean?

Quantity (Q)Performance (P)

qpSometimes, diffusion starts in segments/users that have lower performance expectations than other segments/users

Supply CurveDemand CurveTypical movement of supply curve over time?

18

Quantity (Q)Performance (P)Minimum Threshold of Performance: the minimum performance the market will accept for a new technology

Supply CurveDemand Curve

Typical movement of supplycurve over time

19

Whether we Focus on Performance or PriceDemand and supply curves help us think about important issuesImpact of falling price or increasing performance on demandLevels of performance and price that are needed before a technology becomes economically feasibleOther factors impact on diffusion such as standards, regulations, and organizational issuesDemand and supply curves can also help us to think about the firstProducts to diffuseFirst value propositionsFirst designsMarkets to accept this diffusion First customer segmentsFirst customers within segmentsFirst sales channels

But What Drives Changes in Supply Curves?The second session focused onCreating materials that better exploit physical phenomenaGeometrical scalingSome technologies directly experience improvements through these two mechanisms while others indirectly experience them through improvements in specific components Lets place these improvements in a larger contextWhat is the long term evolutionary process by which new technologies become economically feasible?

OutlineSupply and demand curves and economic feasibilityTwo evolutionary models of technology changeModel of InventionSilicon Valley Model (Improvements in components lead to emergence of new systems)Billion Dollar Startup ClubProblems with over-emphasizing model of invention: Predictions made by MITs Technology ReviewMyths of technology changeS-Curves for performanceSlowdowns in old technologies lead to improvements in new technologiesLearning and Experience CurvesA-U Model

What was the process by which these opportunities emerged?Did they emerge through process ofInventionCommercializationDiffusion?This is most widely described process in economics, emphasized by Joseph Schumpeter, Nathan Rosenberg, Giovanni Dosi, Brian Arthur, and othersScience (new explanations of natural or artificial phenomena) plays critical role in this processFacilitates creation, demonstration, commercialization, and improvement of a concept and product designDid advances in science play critical role in emergence of opportunities exploited by billion dollar startup club?

What was the process by which these opportunities emerged? (2)Or did they emerge through a different process?Improvements in components, particularly those that are defined as General Purpose Technologies (Paul David, Timothy Bresnahan, Manuel Trajtenberg, Elhanan Helpman), enable new products, systems, and services For example, improvements in integrated circuits enabled new forms of computers, mobile phones, and other electronic productsMore broadly speaking, improvements in ICs, lasers, glass fiber, and computers enabled improvements in Internet, which enabled new forms of content, services, and access devices (e.g., mobile phones) to emerge*See for example, http://www.slideshare.net/Funk98/when-do-new-technologies- become-economically-feasible-the-case-of-electronic-products

All of these Models Involve Technological Discontinuities (significant changes in design)This term is widely used in courses on technology managementDisruptive and radical innovations are discontinuitiesOne reason discontinuities are discussed is becauseIncumbents often fail to effectively commercialize them and thus lose substantial market share in the new technologyThus discontinuities represent large opportunities for new entrantsIt is also important to understand the concept that forms the basis for the technologyOne reason is because this helps us understand the potential for improvements

Consider Two Types of Technological DiscontinuitiesWithin Four Types of InnovationsReinforced Overturned Core ConceptsUnchanged

Changed Linkages Between CoreConcepts and ComponentsIncremental Innovation ModularInnovationArchitectural Innovation RadicalInnovationSource: Henderson and Clark (1990)

26What about science? A new concept is often based on new science. Science explains physical phenomenon and enables us to exploit that physical phenomenon.

Henderson and Clarks Innovation Framework Applied to Ceiling FansReinforced Overturned Core ConceptsUnchanged

Changed Linkages Between CoreConcepts and ComponentsImprovementsin Blade or Motor DesignCompletely newform of motorPortable Fans Air Conditioners

Steam-powered fire engine

Technological Discontinuities: What was change in concepts? OldTechnologyNew Technology, i.e., DiscontinuityEarly Benz (1894)

Wright Brothers (1904)Gliders (19th Century)

Which model can best help us to find new opportunities?Each model has its advantages and disadvantagesLets look at each modelThen we will use the billion dollar startup club to understand the relative importance of these modelsRecent startups (still private) with valuations of greater than $1Billionhttp://graphics.wsj.com/billion-dollar-club/Which models help us understand how the opportunities emerged?Multiple models may be applicable to a specific opportunity

Returning to Four Models of Technology Change

OutlineSupply and demand curves and economic feasibilityFour models of technology changeModel of InventionSilicon Valley Model (Improvements in components lead to emergence of new systems)Disruptive model of technology changeBillion Dollar Startup ClubProblems with over-emphasizing model of invention : Predictions made by MITs Technology ReviewMyths of technology change

http://judithcurry.com/2013/05/15/pasteurs-quadrant/Model of InventionIncludesbasicscienceNew Products and ServicesSocial BenefitsIncludesInvention

Different People, Different Terms Research (Basic, Applied) and DevelopmentScience, Technology, CommercializationInvention (proof of concept), Innovation (commercialization of discontinuity/concept), Diffusion of discontinuity/conceptTechnological Discontinuity: based on new concept that comes from advances in science (sometimes called radical or disruptive innovation)Scientific, technical, and economic feasibility

In any case, technologies proceed through stages of scientific, technical and economic feasibilityadvances in science often continue throughout these stages and contributes towards improvements

Advances in science play a key roleFirst step in process by which new technology becomesScientifically feasibleTechnically feasibleEconomically feasible Science provides basis for technology (including invention) and how it works (concept or paradigm) (Dosi, 1982)facilitates refinement and improvement of concepts and prototypes (Arthur, 2007, 2009)resulting in cost and performance trajectories (Dosi, 1982; Funk and Magee, 2015)Model of Invention

Engineers and Scientists focus on this modelMostly consider technologies that involve advances in scienceIgnore other technologies that might be considered trivial in terms of advances in science (e.g., smart phone, tablet computer)Example presented later on MITs Technology ReviewMany scientists focus on scientific feasibility when they discuss futureMichio Kaku: The Future of the Mind, Physics of the Future, Physics of the ImpossiblePeter Diamandis: AbundanceModel of Invention

Examples of technologies for which model of invention provides important insightsBio-technologyOrganic light emitting diodes (OLEDs)Organic transistors and solar cellsQuantum dot solar cells and displaysNew forms of non-volatile memory, carbon nano-tubesSuperconductors, quantum computers, graphene, Holograms, nano-fiber and particles (see following slides)Patent literature heavily emphasizes linear modelScience measured with papersInnovation measured with patentsModel of Invention

Do smart phones, tablet computers, uber, amazon, facebook35

start of commercial production Luminosity Per Watt for Organic Light Emitting Diodes

Why might costs fall as mobility rises?

Why do costsfall as storagecapacity rises?

Cost per kiloamps-meter for Superconducting Cable

Why might costs fallas currentx length increases

Start of commercialproductionWhy do costs fallas speeds increase and energy consumption falls?

Start ofCommercialProduction

Who Improved These Technologies?Many of the improvements were implemented by university researchersPrimarily motivated by publications and perhaps also patents and forming firmsOthers were implemented by startups and corporate labs of large firms (e.g., IBM, Samsung)Motivated partly by publications and mostly by firms desire to commercialize new technologies

How were these Technologies Improved? (1)Creating new materialsOnes with higher luminosity per Watt (both OLEDs and Quantum dots)Ones that convert more sunlight to electricity (Organic, Quantum Dot, and Perovskite Solar Cells)Ones with higher mobility (organic transistors)Ones with higher critical temperatures, magnetic fields, and current densities (superconductors)New materials also require new processes, so each of these new materials required new processes

How were these Technologies Improved? (2)New processes (really a subset of creating new materials)Higher purity and density of carbon nano-tubesLonger Qubit lifetimes and number of Qubits per lifetimeWhen the material is fixed, the improvements primarily come from changes in processesReducing the feature size of memory cells or Josephson JunctionsNon-volatile memorySuperconducting Josephson JunctionsThis also requires changes in both product and process design. Smaller feature sizes involve new product designs and they require new processes in order to achieve the smaller feature sizes

OutlineSupply and demand curves and economic feasibilityTwo models of technology changeModel of InventionSilicon Valley Model (Improvements in components lead to emergence of new systems)Billion Dollar Startup ClubProblems with over-emphasizing model of invention: Predictions made by MITs Technology ReviewMyths of technology changeS-Curves for performanceSlowdowns in old technologies lead to improvements in new technologiesLearning and Experience CurvesA-U Model

Some components such as integrated circuits experience very rapid improvements (Funk, 2013; Funk and Magee, 2015)These improvements enable new forms of systems, such as computers, mobile phones, other electronic products to emerge (Bresnahan and Trajtenberg, 1995; Funk, 2013)Rapidly improving components with many applications are often called general purpose technologies by economists(David, 1989; Bresnahan and Trajtenberg, 1995; Helpman, 2003; Lipsey et al, 2005)Internet is considered general purpose technology by most economistsFor new systems costs and/or performance depend primarily on componentsThis was discussed in session 2Improvements in Components Enable New Systems to Emerge

What advance in science enabled tablet computers to become possible? 52

Laptops MP3 PlayersCalculators Video Set-top boxes E-Book ReadersDigital Games Web Browsers Digital TV Watches Mobile Digital Cameras Smart Phones Example: Better Integrated Circuits Make New Forms of Electronic Products Economically FeasibleMT5009focuseson the future

53

Internet has Experienced Rapid ImprovementsIn speed, bandwidth and costThese improvements have enabled new forms of Content: from text to pictures, videos, flash contentSoftware: from assembly code to higher level languagesCloud computing and Big DataAdvertising, pricing, recommendation techniquesSimilar things have occurred with mobile networks and phones

OutlineSupply and demand curves and economic feasibilityTwo models of technology changeModel of InventionSilicon Valley Model (Improvements in components lead to emergence of new systems)Billion Dollar Startup ClubProblems with over-emphasizing model of invention: Predictions made by MITs Technology ReviewMyths of technology changeS-Curves for performanceSlowdowns in old technologies lead to improvements in new technologiesLearning and Experience CurvesA-U Model

Global Startups (sometimes called Unicorns)valuations over $1 Billionstill private (no IPO yet)have raised money in past four yearsat least one venture capital firm as investor122 firms as of 25 September 2015With 21 other startups that recently exited (IPOs, acquisitions or decreasing value), total of 143 firmsHigh valuations mean investors believe these firms offer something valuable, unique, hard to copySome of them willlead to creative destructionhave $100 Billion plus market capitalizations in the future, like the strongest hi-tech startups: Apple, Google, Amazon, and MicrosoftWall Street Journals Billion Dollar Startup Club

CompanyLatest ValuationTotal Equity FundingLast ValuationUber$51.0 billion$7.4 billionAugust 2015Xiaomi$46.0 billion$1.4 billionDecember 2014Airbnb$25.5 billion$2.3 billionJune 2015Palantir$20.0 billion$1.6 billionOctober 2015Snapchat$16.0 billion$1.2 billionMay 2015Didi Kuaidi$16.0 billion$4.0 billionSeptember 2015Flipkart$15.0 billion$3.0 billionApril 2015SpaceX$12.0 billion$1.1 billionJanuary 2015Pinterest$11.0 billion$1.3 billionFebruary 2015Dropbox$10.0 billion$607 millionJanuary 2014WeWork$10.0 billion$969 millionJune 2015Lufax$9.6 billion$488 millionMarch 2015Theranos$9.0 billion$400 millionJune 2014Spotify$8.5 billion$1.0 billionApril 2015DJI$8.0 billion$105 millionMay 2015Zhong An Online$8.0 billion$934 millionJune 2015Meituan$7.0 billion$1.1 billionJanuary 2015Square$6.0 billion$495 millionAugust 2014Stripe$5.0 billion$290 millionJuly 2015ANI Technologies (Ola Cabs)$5.0 billion$903 millionSeptember 2015Snapdeal$5.0 billion$911 millionAugust 2015Stemcentrx$5.0 billion$250 millionSeptember 2015Zenefits$4.5 billion$596 millionMay 2015Cloudera$4.1 billion$670 millionMarch 2014Dianping$4.0 billion$1.4 billionMarch 2015

The Top 25 Firms as of 25 September, 2015

CategoryU.S.EuropeChinaIndiaOtherTotalSoftware381241E-Commerce 12392228Consumer Internet 18672437Financial743115Hardware72110BioTech, Bio-Electronics718Energy22Space11Retail11Total92142269143

Number of Startups, by Category and CountryMost are Internet Related (122)Note: some of the startups were redefined and the smaller categories were combined, based on the descriptions by the Wall Street Journal and other sources

What was the process by which these opportunities emerged?Did they emerge through process ofInvention; Commercialization; Diffusion?Science (new explanations of natural or artificial phenomena) facilities improvements in technology and often the creation of new conceptOr did they emerge through a different process?Improvements in components enable new products, systems, and services For example, improvements in integrated circuits enabled new forms of computers, mobile phones, and other electronic products

MethodologyWhich of these processes enabled the opportunities to emerge that were exploited by the billion dollar startup club?Invention and advances in scienceExamine the U.S. patents held by members of startup club and scientific papers cited by the patentsScientific papers are defined as papers published in journals that are in science citation indexContrast papers in physical and life science journals with those in engineering (e.g., IEEE) and computer science (e.g., Association of Computing Machinery) journalsCompare importance of scientific papers across categories

Methodology (2)Which of these processes enabled the opportunities to emerge that were exploited by the billion dollar startup club?Improvements in componentsBy reading descriptions provided by the Wall Street Journal and other sources, what number of startups can be defined as Internet related startups or in general those that benefit from improvements in ICs?Define sub-categories for each category of Internet-related startupsExplain how improvements in components, particularly those that can be defined as general purpose technologies, enabled these opportunities to emerge?

CategoryTotal NumberPercentage of Startups with Patents 1 patent 10 patents 50 patentsSoftware4163%29% 7.3% E-Commerce 283.4% 3.4% 0%Consumer Internet 3723% 17% 0%Financial156.6% 6.6%6.6%Hardware1090% 70% 20% BioTech, Bio-Electronics888% 50% 0%Energy2100% 100%50% Space1100% 0%0%Retail10%0%0%Total14339%23% 4.9%

Percentage of Startups All, by Numbers of Patents

CategoryTotal Number Percentage of Startups with Patents 1 patent 10 patents 50 patentsSoftware3866%32%7.9%E-Commerce 128.3%8.3%0%Consumer Internet 1839%28%0%Financial714%14%14%Hardware786%72%28%BioTech, Bio-Electronics786%56%0%Energy2100%100%50%Space1100%0%0%Total9254%34%7.6%

Percentage of U.S. Startups, by Numbers of Patents

CategoryTotal Number of startupsPercentage of Startups with Patents Citing Scientific Papers (SPs)Citing 1 SPCiting 10 different SPsCiting 50 different SPsSoftware4127%2.5%0%E-Commerce 280%0%0%Consumer Internet 372.7%0%0%Financial150%0%0%Hardware1050%0%0%BioTech, Bio-Electronics888%75%75%Energy250%50%0%Space10%0%0%Retail10%0%0%Total14318%5.6%4.2%

Percentages of All Startups, by Numbers of Scientific Papers Cited in Patents

CategoryTotal NumberPercentage of Startups with Patents Citing Scientific Papers (SPs)Citing 1 SPCiting 10 different SPsCiting 50 different SPsSoftware3828%7.5%0%E-Commerce 120%0%0%Consumer Internet 180%0%0%Financial70%0%0%Hardware763%0%0%BioTech, Bio-Electronics788%75%75%Energy250%50%0%Space10%0%0%Total9223%7.6%5.4%

Percentages of U.S. Startups, by Numbers of Scientific Papers Cited in Patents

Few Startups have Patents that Cite Scientific PaperOnly 4.2% of all startups have patents that cite 50 or more different papersOnly 5.6% of all startups have patents that cite 10 or more different papersEven for U.S. startups, the percentages are lowOnly 5.4% of U.S. startups have patents that cite 50 or more different papersOnly 7.6% of U.S. startups have patents that cite 10 or more different papers

Startups for a Few Categories Have Patents that Cite Scientific Papers75% of BioTech/Bio-Electronic startups had patents that cited more than 50 scientific papersOne of two (50%) of energy startups had patents that cited more than 10 scientific papersAll of these startups are U.S. startupsIn comparisonOnly 7.3% of the software startupsNone of the e-commerce, consumer Internet, or hardware startups had patents citing 10 or more scientific papers

Pure Science vs. Engineering and Computer ScienceThe BioTech/Bio-Electronics and energy startups had patents that cited papers in pure scientific journalsPhysicsChemistryBiologyOnly one startup outside of these categories cited papers in pure scientific journalsPalantir, a software startupIt cited more than 10 scientific papers including Nucleic Acids Research and Bioinformatics

SummaryAdvances in science did not directly play an important role in the emergence of opportunities exploited by startupsFew scientific papers cited in patentsOf the few papers cited in patents, they were mostly for startups in Bio-Tech/Bio-Electronic category Few science-based productsNo carbon nanotubes, graphene, nano-particle, quantum dot, superconductor, display, lighting, new forms of integrated circuits, membranes, or quantum computershttps://www.youtube.com/watch?v=yesyhQkYrQMThese types of science-based technologies are emphasized by engineering schools

Summary (2)Thus, traditional process (invention, commercialization and diffusion) does not explain how opportunities emergedFew science-based prototypesFew improvements in performance and cost for these new prototypes driven by advances in scienceWhat about improvements in components?Can they explain the emergence of opportunities that were exploited by startups?Lets look at the startups for each category, beginning with e-commerce

Sub-CategoryNumberNames of FirmsClothing and Accessories9Fanatics, Vancl, Gilt Groupe, Mogujie, JustFab, LaShou, Zalando, Global Fashion Group, LazadaBroad Variety of Products7Flipkart, Contextlogic, Snapdeal, Coupang, Koudai Shopping, Quikr, JD.comFurniture, Interior Design5Home24, Honest Co, FarFetch, Wayfair, FabOther Specialty Sites5Warby Parker, Blue Apron, Beibei, Pluralsight, We WorkDiscount coupons2Coupons.doc, MeituanTotal28

Number of E-Commerce Startups by Sub-Category

What Enabled these Opportunities?Fifteen of 28 startups focus on fashion related products clothing, accessories, furniture, and interior design. Although music, videos, books, electronic products dominated early online sales in U.S. and elsewhere, fashion related products have experienced rapid growth in online sales over the last 10 yearstheir U.S. sales were 50% higher than those of music, videos, books, electronic products in 2013Improvements in Internet speed and bandwidthEnabled more complex and aesthetically pleasing web pages and thus fashion related opportunities (see below)Enabled new users and thus new opportunitiesThe Ongoing Evolution of US Retail, Journal of Economic Perspectives, Ali Hortacsu and Chad Syverson, Vol 29, No 4, pp. 89-112

The Ongoing Evolution of US Retail, Journal of Economic Perspectives, Ali Hortacsu and Chad Syverson, Vol 29, No 4, 2015 pp. 89-112

Furniture, Sporting Goods, ClothingFashion, clothing, furnitureE-Commerce Changed from Digital Products to Fashion, Clothing, Furniture

Increases in Speed Enable Increases in Web Page SizeAnd Number of Objects (pictures, videos, flash files)

Large number of 28 startups in two largest emerging economies and are mobile related9 from China and 2 from India16 of them primarily depend on access from mobile phonesBoth these trends consistent with improvements in Internet and Internet-related devicesAs cost and performance of Internet improved, Internet diffusion spread to countries such as China and India and to new access devices such as mobile phonesSmart phone-targeted services attract young people and other fashion-conscious shoppers to the Internet and this impacts on popularity of fashion-related productsTwo Other Key Trends

Sub-CategoryNumber Names of FirmsRide Sharing7Uber, Didi Dache, Kuaidi Dache, Ola Cabs, Lyft, Grabtaxi, BlaBla CarFood (delivery, restaurant search)6Delivery Hero, Zomato, Instacart, Hello Fresh, Ele.me, DianpingAudio/Video6Spotify, Shazam, Pinterest, Snapchat, KIK Interactive, TangoGames, Digital Entertainment5Kabam, Garena Online, Fan Duel, Draft Kings, Legendary Entertainment Social Networking5Houzz, NextDoor, Eventbrite, Lamabang, Vox MediaHotels2Airbnb, TujiaHealth Care2Oscar Healthcare, ZocDocOther5Rocket Internet, Yello Mobile, APUS, BuzzFeedTotal37

Number of Consumer Internet Startups by Sub-Category

What Enabled these Opportunities?All 37 provide services that were not available during early years of Internet (late 1990s and early 2000s) because Internet did not have sufficient bandwidth and/or mobile phones did not have sufficient capability This is particularly true of startups that were founded in China or India or that depend on mobile phones9 from China or India25 of 37 services mostly depend on smart phones and often on smart phone appsthis includes all ride sharing, food, and hotel-related services, and most audio/video, social networking, and other services

What Enabled these Opportunities? (2)Taxi apps (e.g., Uber) have become most famous of these appsAlso food (delivery, restaurant search), audio/video (music photos), some games, social networking (specialized sites)Many of these startups can also be defined as members of the demand or sharing economyTaxi, food services, Airbnb, TujiaConsumers are paying for services that provide taxis, food, and hotels on demand and all of these services clearly require mobile phones

http://www.wsj.com/articles/in-china-fast-food-fight-turns-to-delivery-1439130011

Sub-CategoryNumberNames of FirmsSales, Human Resource, Inventory Enterprise software14Shopify, Apttus, Coupa, Qualtrics, Zenefits, Automattic, CloudFlare, InsideSales.com, Sprinklr, Deem, AppDynamics, Slack, Medalia, Domo Security software5Tanium, Good Technology, Lookout, Okta, ZscalerDatabase, data storage software6Nutanix, Simplivity, MarkLogic, PureStorage, MongoDB, ActifioBig Data Software and Services4Palantir, Cloudera, Hortonworks, MuSigmaOnline Ad Software3InMobi, AppNexus, IronSourceCloud storage2Dropbox, BoxSoftware Dev. Tools2Twilio, GithubOther Tools3DocuSign, Evernote, New RelicIntegration Platforms1MuleSoft Internet of Things Platform1Jasper TechnologiesTotal41

Number of Software Startups by Sub-Category

What Enabled these Opportunities?All these opportunities involve cloud computingCloud computing emerged as improvements in Internet speed and bandwidth occurredVarious types of enterprise, software, software development and other tools, and platforms are accessed or downloaded via cloud by organizations and to lesser extent individualsOrganizations use software for internal use or on website. This includes enterprise software for human resources, sales, marketing, operations, human resourcesPurchase Big Data services or use cloud storage servicesEconomic feasibility of these opportunities depended on improvements in Internet bandwidth and speed

What Enabled these Opportunities? (2)Most of these opportunities involve big dataBig data is broad term for data sets so large or complex that traditional data processing techniques are inadequateIt tests much more complex models with many more independent variables than does traditional data analysisIt emerged as improvements in Internet speed and bandwidth occurredOrganizations purchasebig data software and servicessoftware services for sales, human resource, inventory enterprise software suppliers that includes big data functions

What Enabled these Opportunities? (3)Organizations purchase big data software/servicesPurchase big data results through services or do big data internally with software or services from Palantir, Cloudera, MuSigma, HortonworksUse data base software from Nutanix, Actifio, Simplivity, MarkLogic, PureStorage, MongoDBOrganizations also purchase software services for sales, human resource, inventory enterprise software suppliers that includes big data functionsthis includes Shopify, Apttus, Coupa, Deem, AppDynamics, Sprinklr, Qualtrics, InsideSales.comOpportunities emerged as improvements in Internet speed and bandwidth occurred

What Enabled these Opportunities? (4)Improvements in Internet speed and bandwidth along with emergence of cloud computing and big data caused other opportunities to emergeSecurity has become more importantTanium, Good Technology, Lookout, Okta, ZscalerOnline ads have become more sophisticated, both in presentation and deliveryInMobi, AppNexus, IronSourceSoftware development and integration have become more expensive and important Twilio, Github, MuleSoft

What Enabled these Opportunities? (5)Five of the 41 software startups (InMobi, Good Technology, Lookout, Evernote, Twilio) also depended on emergence and diffusion of smart phones such as iPhone and Android phonesEmergence of these phones and networks depended on improvements in microprocessors, flash memory, and displaysWhats Next? To be discussed in Session 4

See for example, http://www.slideshare.net/Funk98/when-do-new-technologies-become-economically-feasible-the-case-of-electronic-products

Sub-CategoryNumberNames of FirmsPeer-to peer lending5Lufax, Prosper Marketplace, Social Finance, Funding Circle, Lending ClubMobile payment4Stripe, One97 Communications, Adven, SquareE-commerce Payment2Powa and KlarnaOther4Zhong an Online (insurance), Hanhua Financial (credit guarantor), Credit Karma (credit scores), Sunrun (solar leasing)Total15

Number of Financial Startups by Sub-Category

What Enabled these Opportunities?Peer-to peer lending and other financial startups have benefited from emergence of Cloud ComputingBig DataWeb sites that specialize in peer-to peer loans offer loans to customers, considered too risky by banksset rates using special algorithms and these rates are often lower than those offered by loan sharksImprovements in Internet bandwidth and speed helped create more sophisticated websites that could assemble credit histories and credit scores of potential borrowers through Big DataSimilar things happened with other and one e-commerceDecisions about credit guarantees, credit scores, insurance, solar leasing, and one e-commerce payments (Klarna) are based on Big Data

What Enabled these Opportunities? (2)Feasibility of e-commerce payment services have benefited from increasing market for e-commerce, which has benefited from improvements in InternetFeasibility of mobile payment services have benefited from improvements in mobile phonesincluding growth in text messaging services in early 2000semergence and growth of smart phones in last seven years Global opportunities7 in U.S.4 in Europe3 in China1 in IndiaWhats Next? Discussed some in Session 4

Hardware Related StartupsAll ten hardware startups provide electronic productsThey are not placed into sub-categoriessince each of them provides a different type of electronic productSmart phones, rugged cameras, dronesWearable health, augmented reality glassesStorage hardware, audio headphones, assisted visionGaming mouse, smart thermostatsAll of these opportunities depended on improvements in electronic components

Other StartupsOther startups depended less on improvements in electronic components than did above onesEnergy, space, and retail startup do not benefit greatly from improvements in electronic componentsOnly four of eight 8 bio-tech/bio-electronic startups might benefit from rapid improvements in components, including electronic components Theranos, Intarcia, Proteus Digital Health, 23andMeFour other startups (Moderna, Stemcentrix, Adaptive BioTechonlogies, CureVaC) offer drugs (bio-tech) The drug related products involve advances in science, and this is consistent with data on patents and papers presented above

SummaryMost startups exploited opportunities that benefited from improvements in electronic components, which experience rapid improvementsInternet bandwidth, cost, and speedIntegrated circuits, lasers, photo-sensors, computersThese improvements in electronic components enabled improvements in Internet speed and bandwidth and emergence of new forms ofInternet contentServicesSoftware121 of 143 are Internet related10 are related to electronic hardware

Whats Next: Much of this will continuewith some changesMany new ones discussed in Session 4Software: cloud computing, enterprise software, big data, online ads, security, database e-commerce: more fashion, cosmetics, drugs, food and beveragesConsumer internet: Taxi (Session 9), social networking, food, games, music, hotelsFinancial services: P2P lending, mobile payment, micro-financingHardware: Phones, drones, wearable computingImprovements in components such as ICs (Moores Law)Greater use of smart phones, other mobile devicesImprovements in online Internet experienceMore social networkingGrowth of Internet in new countries: China, India, and other countries

Internet of Things (Session 5)Better and cheaper ICs, MEMS, transceivers (WiFi, Bluetooth), and energy harvesters are enabling all mechanical products to be connected to InternetWhich products can benefit the most from being attached to Internet?Big Data services and software will also emerge and they will probably become the biggest opportunitiesWho will provide these services and software? Wearable Computing and Health Care (Sessions 6, 7, 8) Better and cheaper bio-sensors, ICs, MEMS and displays are enabling more health care related wearable computingBig Data services and software will also emerge and will likely provide most of the opportunities

Two Big OpportunitiesFor more info, see: http://www.slideshare.net/Funk98/presentations

Lets Connect Everything tothe InternetFor more info, see: http://www.slideshare.net/Funk98/presentations

The next step in computing after smart phones and tablets

One big market for wearables will be health care monitoring various parts of your bodyFor more info, see: http://www.slideshare.net/Funk98/presentations

For your projectsCan you better explain the types of software, e-commerce, consumer internet, or financial services that will likely emerge in the next few years?Focus on one of the categories and explain the types of technological changes that are changing the economics and thus enabling better software, e-commerce, consumer internet, or financial services to emergeCan you use this analysis to explain the types of changes that will likely occur in the sub-categories?Will some sub-categories become more or less important? Will there be new sub-categories?Or will there be new categories?

OutlineSupply and demand curves and economic feasibilityTwo models of technology changeModel of InventionSilicon Valley Model (Improvements in components lead to emergence of new systems)Billion Dollar Startup ClubProblems with over-emphasizing model of invention: Predictions made by MITs Technology ReviewMyths of technology changeS-Curves for performanceSlowdowns in old technologies lead to improvements in new technologiesLearning and Experience CurvesA-U Model

For the remaining slidesProblems with over-emphasizing the linear model: Predictions made by MITs Technology ReviewSee predicting breakthrough technologieshttp://www.slideshare.net/Funk98/presentations/2Myths of Technology Changehttp://www.slideshare.net/Funk98/presentations/3