Chapter 3

From Amazon to Zipcar: No Industry Untouched

A survey from the National Association of Corporate Directors and the consulting firm of Oliver Wyman provides a sobering assessment of the tech-savviness of most boards of directors:

While you could argue whether they are tech-savvy, most boards are certainly paranoid about being “Blockbustered.”

The New Yorker summarizes well the company's missteps: “Blockbuster's huge investment, both literally and psychologically, in traditional stores made it slow to recognize the Web's importance: in 2002, it was still calling the Net a ‘niche’ market. And it wasn't just the Net. Blockbuster was late on everything—online rentals, Redbox-style kiosks, streaming video.”²

No wonder executives flocked to events like IBM's “Smarter Industries Symposium” in Barcelona, Spain, in 2010. More than 1,200 clients, partners, and IBM leaders from around the world gathered together to discuss how organizations could harness the enormous potential from “smarter” technologies, solutions, and business processes. Out of that event, IBM generated reports with ideas for 10 industry sectors—Banking, Communications, Electronics, Automotive, & Aerospace, Energy & Utilities, Government, Healthcare, Insurance, Oil & Gas, Retail, and Transportation.³

Technology-Driven Turmoil

Why stop at just those 10 industries? History has shown technology-driven turmoil in a much wider set of markets:

Is Any Industry Safe?

Can any industry hide from technology-driven disruption? 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.’”⁵

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).”⁶ And he says that in spite of his friendship and board counsel from Bill Gates, the founder of Microsoft.

Look at Coca-Cola, though, 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.”⁷

Or Burlington Northern Santa Fe, another of Buffett's investments, which has used technology to lead the railroad industry, including “[a warning system that] 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.”⁸

Another example is Procter & Gamble, which is pioneering new forms of social media marketing. It is also extending its Tide franchise into the fragmented dry-cleaning 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.

Next there is 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 interactions mostly by web or mobile device and its claim adjusters are equipped with Toshiba Toughbooks and digital cameras. In a likely Buffett-inspired knock on our technology-obsessed lives, GEICO is not, however, afraid to run commercials that show people doing dumb things with their smartphones!

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.

Offense, Not Defense

Instead of paranoia driving technology strategy, it is better to look at proactive opportunities to leverage the ubiquity of technology around us no matter what the industry.

It helps to think like Salvador Dali, who once said, “At the age of six I wanted to be a cook. At seven I wanted to be Napoleon. And my ambition has been growing steadily ever since.” The new Dali museum in St. Petersburg, Florida, reflects that big thinking of the artist it honors. While its architecture and waterfront location are stunning, even more so is the design and technology to withstand the hurricanes that frequently threaten the state. The glassed areas are made up of 900 triangular-shaped panels, each unique. The areas holding art have 18-inch concrete walls with about 200 miles of reinforcing steel, and have been tested to withstand a Category 5 hurricane.⁹

Fountaindale Public Library in suburban Chicago, a model for the “library of the future,” features flat-screen TVs, computer terminals, self-checkout stations, an automated book sorter, wi-fi, and other technologies.¹⁰ Across the country in California there is an even more futuristic view: “Thus, the concept of a study center with computers, Wi-Fi, study tables, comfy chairs, and DVD and CD loans began to develop. The branch might not house stacks of books (it still could—we're still reviewing our options), but library patrons could ‘order’ books from the large Central Library (located about four miles away) and have them delivered to Marina Park the next day. This branch could be construed as a ‘digital library,’ but the Newport Beach Public Library system would have plenty of books and other printed materials readily available for borrowing.”¹¹

Other examples include:

• There are online classrooms. “Salman Khan, a former math geek and young hedge fund analyst, five years ago began making 10-minute videos to help his struggling nieces with their math homework. For convenience sake, he posted them on YouTube and found to his surprise that other people liked them, as well. Today, the Khan Academy website boasts 2,300 separate math tutorials, from simple addition to vector calculus, that have been viewed more than 50million times by more than 2million students and are in active use in more than a thousand classrooms across the country.”¹²
• Take Kosaka, a unit of the metals-and-mining company Dowa Holdings. “One cell phone can yield up to 20 milligrams of gold; that may seem minuscule, but consider this: A ton of phones can provide 20 times more gold than a ton of gold ore. The company's recycling process is based on methods long used by Dowa to get metals from raw ore. Disused, dismantled electronics are heated to 1,300 degrees Celsius, at which point 19 different metals (so far) can be extracted. It's working on ways to harvest more. One target: neodymium, a rare-earth essential for magnets used in everything from microphones to wind turbines.”¹³
• There's Mattel, with its “mental marathon”—the Mindflex Duel game. Using a brain machine interface from NeuroSky, players move a ball through an obstacle course, using only the power of their minds. Talk about future Jedi Masters and the ability to control events with a wave of the hand!
• There's the Lego-like videogame Minecraft, where players use blocks to create buildings and just about any other structure. Now 3D-printing software called Minecraft. Print is letting the game's fans bring their creations into the real world.¹⁴
• There's the Keeneland race course in Lexington, Kentucky. The 75+-year-old institution has been rolling out simulcasting of races, social apps, course technologies (sensors on horses, safer turf), and thoroughbred auction tools.
• There's Coldwell Banker, which is putting QR codes on real estate signage. The bar codes can be read by cameras on mobile phones to link to a web page on the phone's web browser. They give an interested party access to all kinds of information and often access to videos that walk through the property.
• There's Trademarkia, whose major technology innovation is a powerful search engine that mines the U.S. Patent and Trademark Office (USPTO) database more efficiently than the government's own search tool. “Trademarkia's business model is classic upselling: Individuals searching for trademarks via Trademarkia are urged to sign up for a trademark-application filing service with (co-founder) Abhyanker's law firm.”¹⁵
• Then there are universities thinking ahead. “To capitalize on the growing cachet of the tech industry, colleges nationwide, including Stanford, the University of Washington, and the University of Southern California, have recently revamped their computer science curriculums to attract iPhone and Facebook-obsessed students, and to banish the perception of the computer scientist as a geek typing code in a basement…. Even universities not known for computer science or engineering, like Yale, are seizing the moment. The deans of the Ivy League engineering schools recently started meeting to hatch ways to market ‘the Ivy engineer.’”¹⁶

The “Phoenix”—Technology-Driven Renewal

We have identified a number of industries where companies were demolished by tech-savvy competitors, but there are also plenty of companies that have reinvented themselves or commercialized technology that 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.”¹⁷

A decade later Apple was valued more than Dell, and it has since gone on to even higher heights.

GoGo, the wi-fi service being offered by many U.S. airlines (like Delta, discussed further on, and Virgin America, discussed in Chapter 6) leverages Aircell's experience with airphones that we had in most seatbacks in the 1990s. Aircell paid the FCC about $30 million to acquire licenses for the air-to-ground frequencies. That allows it to differentiate from the satellite services of 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 Aircell has made since 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 Delta has also leveraged GoGo 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 competitive advantage. It was one of the first airlines to leverage Facebook for online 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 competitor, 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, which we describe in the case study in Chapter 6.

The GM OnStar 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 handheld GPS units and to Google Maps on our smartphones. As we described in Chapter 1, GM is repositioning OnStar via a rearview mirror and on an annual fee basis so even Toyota and Ford customers can avail themselves of it.

Corning, as we describe in Chapter 15, has shown a remarkable ability to go back into its vaults and repurpose technology that was once ahead of its time. For example, the basic materials in its fiber optics had been available since the 1930s, but the market really took off in the 1990s when telecom companies started replacing their copper networks. Gorilla Glass, its very successful product for consumer electronic displays, got its inspiration from strengthened glass Corning had developed in the 1960s.

As the U.S. Postal Service looks to reinvent itself, it will find role models 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.”¹⁹

Then there is the history of Bayes Theorem, which influences so many technologies today. As Sharon Bertsch McGrayne writes in her fascinating book,²⁰ “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 decoding to Homeland Security.”

Conclusion

Out of either paranoia or promise or “phoenix thinking,” industry after industry is looking at next-generation technology-influenced products and services. It is almost impossible to find an industry with an “unbreachable moat” where technology's influence is not felt. Let's next look at the amazingly ambitious vision of leveraging technology even in a tiny place like Roosevelt Island.

Case Study: Roosevelt—Innovation Island

In the summer of 2011, Jonathan Kalkin submitted an entry in the One Prize Competition.²¹ The competition invited creative ideas for linking New York City's five boroughs with transit hubs; expanding waterborne transportation; providing in-water recreation, educational events, and cultural activities; and promoting climate resilience. In April 2010, New York City Mayor Michael Bloomberg launched the New York City Waterfront Vision and Enhancement Strategy (WAVES), a citywide initiative that will create a new sustainable blueprint for the City's 578 miles of shoreline. Planning Commission Chair Amanda Burden had said, “Water is so important that we need to think of it as the sixth borough.”

Kalkin is a resident of Roosevelt Island, which sits between the New York City boroughs of Manhattan and Queens in the East River. Kalkin recently served a three-year term as a Director of the Roosevelt Island Operating Corporation of the State of New York (RIOC).

His entry in the One Prize competition proposed a hybrid/solar fuel cell ferry, fuel cell buses, bike sharing stations, and interesting ideas for smart parking.

What business does a tiny island only 147 acres in size and with a population of just over 13,000 have thinking that big?

For starters, it has Kalkin, who is a self-described geek and an optimist in technology, being able to solve almost any problem. Kalkin says he spent most of his childhood designing and building projects the size of his room with Construx (the Fisher-Price plastic building toys) and using computers and the Internet at a young age to track and pick investments so he could save up enough to buy a robot. The company that made the robot went out of business by the time he had enough funds, but he used this knowledge in design and technology to help him as a principal in the financial industry and later as a director at RIOC.

A Track Record of Technology Innovation

Kalkin started from a good base. The island has the only aerial commuter tram in the country. The tram takes residents across the river to Manhattan in just four minutes. Kalkin oversaw the state-of-the-art tram redesign in 2010 as the Chair of the Operations Committee. Verdant Power has been using the river during ebb and flood to generate tidal power. It has an initial demonstration array of six turbines to grow to a planned full field of units that could generate up to 10 MW of power.²² The island has an automated vacuum collection system: Residents drop trash down a chute, anywhere on the island, and the garbage, depending on the density, shoots through pneumatic pipes at 30–60 miles per hour.²³ That means no messy streets, and importantly, no garbage trucks clogging the narrow streets of the island. Each of these technologies has been operational for years. The garbage system started in 1975, the aerial tram in 1976, and the tidal power generation in 2002.

And the RIOC board has been busy in other ways since Kalkin joined in 2008. Free fiber wi-fi is coming first to the island's parks, with a second phase wrapping most of the island courtesy of Verizon. Verizon is also gearing up its FiOS broadband service for local residents and businesses. The Red Buses that meet the tram described earlier and take residents across the island are tracked real-time by NextBus. It uses GPS and predictive analytics to inform residents via their smartphones or by text message of the status of the bus. They can decide whether to wait for the bus or walk to the tram. In December 2011, Mayor Bloomberg announced a “transformative” event for the Island. Cornell University, partnering with the Technion-Israel Institute of Technology, plans to build a $2 billion Applied Science school there.²⁴

Smart Parking

More significantly, the RIOC has tackled the parking congestion issue by bringing in a vendor called Streetline. Streetline brings together all aspects of parking management technology in one integrated system—from street-level sensors to mobile apps, analytics, and system management software. This helps cities more effectively manage their parking resources and helps motorists find parking more quickly and efficiently.

Zia Yusuf, president and CEO of Streetline, says, “Roosevelt Island is setting the stage for a new world of efficiency and improved services for its citizens. Smart parking solutions can significantly reduce traffic and congestion in cities, improving air quality and in turn quality of life.”

Experts estimate that 30 percent of urban traffic is caused by motorists looking for parking. Additionally, vehicle emissions and drivers looking for parking are so closely linked that a yearlong study found that drivers in a 15-block district in Los Angeles drove in excess of 950,000 miles searching for a space and produced 730 tons of carbon dioxide.

Streetline's patented ultra-low-power sensors and Meter Monitors communicate via a wireless mesh network to deliver valuable real-time information. It notes how long a car is parked, when a car enters and leaves a parking space, and whether payment has been received for metered parking areas.

Kalkin elaborates:

On the consumer end, mobile parking applications can provide consumers with parking information before they arrive. On Roosevelt Island, for example, motorists can use Parker by Streetline to quickly find and pay for available parking spaces via their smartphone.

Early data from the smart parking plan is still being analyzed, but RIOC has noticed a positive difference in parking meter payment, parking law compliance, congestion, and availability compared to areas where the sensors haven't been installed.

Which brings us to the competition and Kalkin's entry.

The One Prize Competition Entry

Kalkin describes his competition entry:

New York City is investing $9.3 million over three years to subsidize a new conventional fuel ferry service, which started in June 2011—but it does not service Roosevelt Island.²⁵

Kalkin continues:

Turn a Vision into Reality

Of course, at this point, it is just a proposal in a competitive event. But Kalkin is excited about implementation opportunities: “There are a number of funding possibilities. When looking into a project, I always try to ask the question, what will this cost us over time if we don't innovate? First and foremost, most forms of transportation are subsidized. Green transportation has an initial higher cost, but over time the fuel savings can pay for the initial investment. There are grants to offset this initial cost, and it can actually cost the government less money over time because there is no need or less need for an ongoing transportation subsidy. In addition to reducing pollution and adding high-tech jobs to the economy, technology helps government become more efficient and responsive to citizens in the community. It reduces parking congestion and improves public transportation reliability which can help revitalize the local economy around it and increase ridership which, in turn, increases government revenue. This efficiency allows government to perform services better with less money and hours spent on manual tasks that are automated. The end result is that citizens and the local economy get the environment needed for business growth and a more responsive and cost efficient government.”

Tiny island, mighty goals. After all, President Franklin D. Roosevelt, who the island is named after, said in a commencement address, “The country needs and, unless I mistake its temper, the country demands, bold, persistent experimentation. It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something.”²⁷