Network contractors like China’s Huawai and ZTE are winners in this revolution. Mobile connectivity is the most important factor in contributing to the rise of this new world. The demand for networking equipment will be strong in the next few years. Network operators need to spend heavily to upgrade their networks to compete for consumers.
Even software companies may not win in this world. As the connectivity is anytime, anywhere and network is the computer, consumers can rent software on the net for temporary use and won’t have to buy it for installation on a personal or company computer. This will increase the competition among software producers as it decreases their market power from the lock-in effect. When software is no longer a fixed cost, users have more incentive to switch. Software production has a high profit margin so far precisely for this reason. In the emerging new world software producers may see their profit margins declining to the average among all industries.
Microsoft and Oracle, for example, command massive market capitalization in stock market. But they are hardly the most innovative or best quality companies. Their consumers usually complain about their products. Still they have been earning high profit margins. The reason is that their consumers have sunk huge fixed costs into their products and have low incentives to switch. The new world puts their business model into doubt. I suspect that their market capitalization will decline dramatically over the next five years.
In theory the biggest winners are the network providers like mobile phone operators. They have the best chance to control users. But, they will also have a hard time. The differences among voice, video and text services will vanish. Service providers maximize their profit margins through price discrimination against high value customers. For example, even though Chinese mobile phone operators have vast numbers of customers, a relatively small number of customers, mainly those that use their services for business purpose, contribute to most of their profits. The merging of voice, video and text will make such discrimination impossible. The service providers can only collect a simple rental fee from their customers.
The content providers should be big winners in the net world with a bigger market and less marketing cost. But they are already losing big and could lose more in the always-on world. The problem is that the existing content providers don’t know have to sell their products. Technology companies like Google have taken advantage of that and collect advertizing dollars by locating the content for its users through their search service. In the end, as content providers are starved of money, they will exit the business. The destruction of the content providers is already unfolding. Newspaper companies are struggling around the world. The always-on world will accelerate the process. Newspaper production will probably vanish in its current form.
Magazines and books could also vanish in their paper forms in the foreseeable future. Electronic paper technologies are sufficiently developed that electronic paper works as well as printed paper. They can’t change to electronic publishing easily. Books and magazines exist because the fixed cost for printing is high. They generate economies of scale in disseminating information. In the electronic paper information can be transmitted at zero cost. The justification for information aggregation with large fixed costs isn’t there. In the future people won’t get their information from fixed cost operators like newspapers, magazines and book publishers.
Of course, the above story implies that the demand for paper will collapse in the future. Paper and pulp production requires massive fixed costs. The existing capacity is probably more than enough for the foreseeable future. It would be hard to justify any new investment in this business.
One big positive of the always-on world is that it makes all the knowledge in the world available to everyone anytime. Not everyone will know how to use this advantage. Enough people will. The world will change for that. For example, education can be carried out outside of schools. Education is the biggest government monopoly allover the world. It works due to the economies of scale from the government imposing uniform standards that offset the inherent inefficiency from government control.
Healthcare is another big business to be affected by the revolution. Healthcare accounts for over one tenth of GDP. Its impact is hard to quantify. Its size and the difficulties in quantifying its effectiveness reflect information asymmetry between doctors and patients. Developed countries protect patients by giving them legal rights for ex-post legal actions against healthcare providers. That in turn causes the healthcare providers to overkill in treatment to avoid bad legal consequences. The always-on world will dramatically decrease the information asymmetry between patients and doctors. This allows people to obtain information instantaneously to verify healthcare professionals’ opinions and prescriptions. It improves the market efficiency in two ways. Patients have less need to sue doctors ex post. It decreases healthcare insurance cost and the amount of care.
Hence, it reduces the need for doctors to overprescribe medicine or procedures
This flattening of the knowledge world has profound implications for how societies will be organized and governed. Human societies are governed by elite who control information and are capable of processing it. Inflation collection, processing, and dissemination are always costly. The existence of elite reflects the need for economies of scale in handling information, which gives advantages and privileges to those who happen to handle information. This advantage often turns hereditary and leads to the formation of a permanent ruling class. The declining cost of obtaining information has already led to dramatic social changes in the past century. The final collapse of information cost to zero will accelerate the trend.
How the information revolution is destroying businesses is a classic example of Schumpeterian creative destruction. The new technology renders a significant share of the economy obsolete. Even though the technology improves efficiency overall, the unemployment that results from business destruction could keep the economy weak for an extended period of time. However, it would be wrong for governments to stop the technology. Overtime market will find alternative uses for the unemployed workers. For owners of the obsolete businesses this is an unmitigated disaster. Their capital stock would have only scrap value.
As old businesses are destroyed, new ones will emerge. The internet isn’t just a tool. It has become a world of its own. When human beings have enough food and shelter, all other activities are entertainment or earning money for buying entertainment. The cheapest entertainment is for people to amuse each other. This may be happening. YouTube, Twitter, Facebook, etc., are mainly platforms for people to entertain each other. One can work hard to earn enough money for buying a Mercedes car. Driving it would give one certain satisfaction. Or one could spend time on the net getting entertained for free. Hence, there is no need to work hard anymore. I suspect that in the always-on world internet will decrease rather than increase productivity in traditional sense. But, people may get more satisfaction out of it.
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