Interactive Technologies: The True Game-Changer
Different technological changes impact business in different ways, but the most powerful is interactive technologies. (This article is not about the company of that name.)
A typical business is subject to diminishing marginal returns. Let’s estimate the value provided to a company’s customer per unit of good or service sold. It begins with some positive value provided to customers, and that value typically improve holds over time. The company makes some marginal adjustments to the products that improve the customer experience. But the low-hanging fruit is eventually picked. Further improvements are harder and harder to make.
On the sales side, the first buyers are typically excited by the product. The next group of buyers are a little less excited, but still pretty positive. Eventually the product is purchased by people who find it nice but not great.
And as the customers become less and less enthusiastic, the company has a more difficult time improving the product.
In automobiles, the first automatic transmissions were extremely cool. Then air conditioning was truly cool. And then we got cup holders. And now the gee-whiz technology displays on the dashboard what we would see if we looked in the rearview mirror.
Addition of a new technology can jump the process on to a higher trajectory. Consider a production example. A typical manufacturing factory is in declining marginal productivity mode. That is, output per worker grows, but each year’s growth is less than the previous year’s growth. The addition of technology that grows exponentially shifts output per worker onto a new trajectory. Then diminishing returns set in once again.
Dr. Bill Conerly
Impact of new technology.
As an example, many factories have added robots for a variety of functions, including packaging, welding, painting, and assembly. The introduction of robots typically boosted output, sped up production, and improved quality. However, once those gains are in place, the company again faces diminishing opportunities for further improvement.
When mature technologies interact with new technologies, the result looks like punctuated equilibrium: steady, predictable gains punctuated by occasional bursts of rapid improvement, followed by more slow-but-steady growth. Imagine the chart above with a second leap to a higher trajectory, followed by another stable period.
Now here is the true game-changer. When growth technologies interact with other growth technologies, look for stunningly rapid change. Apple’s iPod was not the first portable device for playing MP3 audio files. When it was introduced, my techie kids told me that there were better and cheaper MP3 players available. However, Apple married its device to another rapidly growing technology: e-commerce. The combination of an MP3 player and the iTunes online store produced something like double exponential growth.
Eventually, all technologies mature into declining marginal productivity, at least until the next disruptive technology comes along. So the iPod went through a few changes, adding storage capacity with smaller physical dimensions. But then the big bang happened. Apple married the device to another high growth technology: the cell phone. They threw in Internet access and a touch screen, two other growth technologies, and we now had not a two-fer, not a three-fer, but a four-fer: four high growth technologies in one device.
Many people tend to dismiss new technologies as being trivial or faddish. I myself do this. (See my comment above about automotive technologies.) But we should all keep our eyes open for ways to combine two or more new technologies into products that create truly explosive value.
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