I am excerpting on this blog roughly 10% of my next book, The New Technology Elite due out in late January. The text is going through the publisher’s edits and subject to change. Here are some excerpts from Chapter 3.
Some would argue the legendary investor Warren Buffett has done well by staying away from investing in tech companies (or those susceptible to technology driven turmoil). In his words "In business, I look for economic castles protected by unbreachable 'moats',"
Buffett prefers to stick with investments in companies like Coca-Cola because as he says it is "very easy for me to come to a conclusion as to what it will look like economically in five or 10 years, and it's not easy for me to come to a conclusion about Apple (or other tech company)." And he says that in spite of his friendship and board counsel from Bill Gates, the founder of Microsoft.
But look at Coca Cola as it rolls out its Freestyle vending machines. “The dispensers each contain 30 cartridges of flavorings that mix up 100 different drink combinations. The cartridges are tagged with radio frequency ID chips, and each dispenser contains an RFID reader.”
Or Burlington Northern Santa Fe, another of Buffett’s investments, which has used technology to lead the rail road industry including “(a warning system which) uses satellites to detect speed-limit violations, improperly aligned switches, and missed signals. If a conductor doesn't respond appropriately, the system is supposed to stop the train automatically.”
Or Procter & Gamble which is pioneering new forms of social media marketing. It is also extending its Tide franchise into the fragmented drycleaning business with stores that use email promotions, provide 24x7 secure locker access, ‘greener” cleaning options and other technology innovations. The accomplishments of its CIO Filippo Passerini are described further in Chapter 10.
Or GEICO, one of Buffett’s earliest and most lucrative investments. GEICO disrupted traditional car insurance by selling via mail rather than agents. Today it is a technology marvel with elaborate call centers, many of its customers manage their GEICO interaction mostly by web or mobile device and its claim adjusters are equipped with Toshiba Toughbooks and digital cameras. But in likely a Buffett inspired knock on our technology obsessed lives GEICO is not afraid to run commercials which show people doing dumb things with their smart phones!
No matter what your industry, it helps to be paranoid about the Netflix gunning for you. Of course, the rules of disintermediation keep getting nuanced. Apple has shown how a real estate intensive model in its retail system has been critical to its success. It is hugely dependent on labor intensive Foxconn, a contract manufacturer with over a million employees in China and its application ecosystem with applications and games from tens of thousands of entrepreneurs.
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We have identified a number of industries where companies got demolished by tech savvy competitors, but there are also plenty of companies which have reinvented themselves or commercialized technology which did not succeed in the first go-around.
Exhibit A is of course Apple.
In 1997, shortly after Steve Jobs returned to Apple, Dell's founder and chairman, Michael S. Dell, was asked at a technology conference what might be done to fix Apple, then deeply troubled financially.
"I'd shut it down and give the money back to the shareholders."
A decade later Apple was valued more than Dell, and has since gone on to even higher heights.
GoGo, the wifi service being offered by many US airlines (like Virgin America discussed in Chapter 6 and Delta discussed below) leverages Aircell’s experience around airphones we had in most seatbacks in the 90s. Aircell paid the FCC about $ 30 million to acquire licenses for the air-to-ground frequencies which allows it to differentiate from the satellite services Row 44 that Southwest and others utilize. Planes transmit via underbelly blade antennae to 92 cell towers that can be accessed around the country and up to about 100 miles over international waters. In the long run, with numbers starting to build nicely (such as 1 GB of data per flight), the licenses may turn out to be one of the best investments they have made – and they are leveraging previous investment in the towers.
Delta Airlines has had a roller coaster ride along with the rest of the airline industry. In its heyday, the Delta Red Coat was a symbol of exemplary customer service – authorized to do all kinds of favors for passengers. Delta has reintroduced the Red Coat this time armed with Motorola handhelds to “help them more efficiently assist passengers, directing those who've missed a connection to their new flight, for example, securing boarding passes or even providing food vouchers if there is a need.’18 It has also leveraged GoGo above aggressively says Cheryl Scheck who leads eCommerce strategy for the airline. With more than 2,200 flights daily, Delta operates the largest fleet of Wi-Fi enabled aircraft in the world. Increasingly, in addition to convenient flight times and air fares, the availability of Wi Fi is a decision criterion for many passengers and it provides Delta a significant competitive advantage. It was one of the first airlines to leverage Facebook for on-line check-ins. At selected airports, Delta has worked with franchisees to operate restaurants that are physically located in the gatehouse area and use iPads for customers to place orders. These same devices are free for customers to use to surf the internet. This new “digital experience” is allowing Delta a fighting chance to regain its past glory.
Delta’s other big competitior, UnitedContinental, has announced plans to move to a “paperless flight deck”. Each pilot will be issued an iPad with a Jeppesen Mobile FliteDeck app. Jeppesen is a unit of Boeing and has traditionally delivered flight plans, navigation and other data to pilots via paper. Both Delta and United are trying to stay current with a new standard in technology enabled air travel being pioneered by startup carriers like Virgin America we describe in the case study in Chapter 6.
The GM On Star telematics with its navigation and emergency services was a significant differentiator for its cars a decade ago. Then the world moved to Garmin and other hand held GPS units, and to Google Maps on our smart phones. GM is repositioning On Star via a rear view mirror and on an annual fee basis so even Toyota and Ford customers can avail of it.
Corning, as we describe in Chapter 15 has shown a remarkable ability to go back into its vaults and repurpose technology which was once ahead of its time. So the basic materials in its fiber-optics had been available since the 1930s but the market really took off in the 90s when telecom companies started replacing their copper networks. Gorilla Glass, its very successful product for consumer electronic displays, had its inspiration from strengthened glass Corning had developed in the 1960s.
As the US Postal Service looks to reinvent itself it will find inspiration in a number of European peers. “Itella, the Finnish postal service, keeps a digital archive of its users' mail for seven years and helps them pay bills online securely. Swiss Post lets customers choose if they want their mail delivered at home in hard copy or scanned and sent to their preferred Internet-connected device. Customers can also tell Swiss Post if they would rather not receive items such as junk mail. Sweden's Posten has an app that lets customers turn digital photos on their mobile phones into postcards. It is unveiling a service that will allow cell-phone users to send letters without stamps.”
Then there is the history of Bayes Theorem which influences so many technologies today. As Sharon Berscht McGrayne writes in her fascinating book “respected statisticians rendered it professionally taboo for 150 years—at the same time that practitioners relied on it to solve crises involving great uncertainty and scanty information, even breaking Germany's Enigma code during World War II, and how the advent of off-the-shelf computer technology in the 1980s proved to be a game-changer. Today, Bayes' rule is used everywhere from DNA de-coding to Homeland Security.”
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