The race to create the 21st century utilities: : the biggest opportunity of our era

Author

Sarwant Singh, Contributor

September 9, 2014

Written By Shai Agassi, Founder of Better Place with contributions from Sarwant Singh 

Over the last two centuries, we humans have made same astonishing inventions and discoveries that have transformed human lives. Wave after wave of Innovation gave birth to industries that never existed before. The giants who shaped these industries shaped our daily lives, making tremendous profits in the process. Within decades the innovation became commoditized, and their companies turned into utilities.

We ask ourselves what will be the utilities of the future?

The 19th century was driven by expansionism driven by the shift to “molecular innovation” – our ability to burn fossil fuels and in turn create better metals and stronger machines. The global economy shifted away from human labor (including slave labor) into an industrialized society. Capitalism – the separation between asset ownership and the need to work the asset for a living – drove more of us into urban setting. We became a society where manufacturing and trade created wealth, beyond anything society had seen before.

Expansionism created new needs. Speed demanded faster solutions. Utilities spawned utilities.

Take the railroad industry, as an example of the first utility. Trains moved faster and further than the horses and canal delivery system that preceded it. As a by-product, we needed to notify people of what’s coming down the tract another and industry emerged – the telegraph (communication) industry. Messages, once requiring physical representation (in the form of words on paper, carried by people), became signals, transmitted over wires in the form of electrons, codified through Morse code. The ability to send a message, practically instantaneously, with comparably little physical form or human involvement created the second utility – The Telegraph Company.

The 20th century was marked by a massive shift from molecules to electrons. Electrification started as clean form of light – providing reading hours and electric “labor” at lower cost and better health – a business that would qualify as “clean technology” today. First generation electricity was very capital intensive – consumers were required to buy generators, light bulbs, wires and switches from Edison & co. AC power – the second version of electric system design – enabled long distance power transmission, expanding the use of that power to high-powered electric motors, replacing coal and steam as the main energy source of the industrialized world.

This emergence of “electrons on tap” as a business model followed the model proven successful by the communication industry. Edison Power, Westinghouse and all their daughter companies rolled massive infrastructure of power cables, generators, switches and meters, funded by the new mega-bankers. In the process this giant eco-system created the biggest machine humanity ever constructed – the electric grid. The essential foundation of of the modern utility remain valid to this day:

  1. Replace molecules with electrons, at least when it comes to transmitting your goods over long distances
  2. Eliminate human labor to the degree possible –
  3. Provide seemingly “infinite supply” of the service offered by the utility
  4. Allow consumers to pay per consumption unit instead of owning capital-intensive assets.

Utilities start their life as “science fiction”, become proven by science, funded by those who see further than their quarterly profitability indices. When they become ubiquitous we cannot imagine our lives without them – so much so that we end up regulating the industry to protect our way of life.

As the 20th century came to a close, the world had seen the emergence of the new data utility – the Internet. The adoption of Internet technology created a massive shift in almost every person’s life and industrial power balance. The underlying Internet infrastructure – transmission of data – was not owned by one or another company. Yet, layer upon layer of wealth were created by those companies that were smart enough to build the right platforms and dominate their layer – from Corning at the early days of fiber, Cisco at the routing level and all the way up to Google at indexing and search or even Apple at the smart device level.

Companies that did not understand how this ubiquitous data tsunami was moving towards their “safe shores” woke up one day to discover themselves engulfed by a sea change – a term coined by Bill Gates at Microsoft. Indeed a sea of data that changed engulfed one industry after another in the twenty years that followed. Telco’s saw voice calls on top of their wire infrastructure lose out to VoIP providers. Media companies saw their entire revenue base shrink as advertisers shifted budgets to the likes of Google and Yahoo. Retailers picked a losing battle against the likes of Amazon and eBay, only to shut down category after category. The underlying forces: Powerful smart mobile devices; Infinite bandwidth; Cloud compute and storage infrastructure, Big-data analysis all converged to create the innovation platforms for the next generation of applications and smart layers.

So, what will be the utilities of the 21st century? Ginni Romety of IBM talks about Big Data as the utility of this century. We believe Big Data is more an enabler then a utility.

In our opinion, the four utilities of the future will not be one major invention or discovery but a collection of them, chiefly;

1)    Mobility utility – Drivers in future cars will go from hands free to feet free to mind free as mobility transforms into a utility.  As fleets of autonomous electric pods carry people from point A to B, most people will prefer being chauffeured over owning and operating a car. More importantly, mobility as a whole will convert from asset intensive (owning your cars) to a service – a utility. The brand identity, whereby a person is identified with the car they drive, will shift away from OEM to operator identity. Electric pods – quiet, clean, and most importantly cheep and convenient will change urban and suburban life.

2)    Perishable goods utility – Once we have the ability to transmit people, we can use the same underlying service to ship goods. Add to autonomous delivery the emergence of automated regional storage localized production and automated “final assembly” of personalized products powered by 3D printing. Consumers will experience delivery of daily consumer goods – all the convenience of WebVan without the prohbitive human cost involved in packing and delivery. This ubiquitous delivery will revolutionize our daily retail experience, and change our habits.

3)    Health Utility – We expect a paradigm shift in the healthcare business model in the coming decade with the whole concept of healthcare shifting from an age-old model of treating symptoms towards a more holistic, preventative model of predicting, early diagnosing and ongoing monitoring. The health management industry, with its increasing cost-structure, will go through a massive transformation. A new proactive service will emerge, one that monitors and analyzes key set of “health signals” 7 by 24. The health utility will collect massive amounts of health data through smart devices, offering preventive intervention and proactive “health agents” that maintain patients healthy at all time. Corrective intervention will become the costly exception when the cheap preventive system failed to preserve our health.

4)    Media Utility – Already beginning to materialize in the form of NetFlix, YouTube, Pandora and now Amazon. We now have a world where companies are offering ever-present infinite-shelf content and games creating a utility that delivers “entertainment on tap”. This utility is vastly different than the current media channels, in that it mainly collects massive amounts of content, offering personalized (big-data based) curation service to the viewers – playlists that adjust to keep you engaged vying for your attention and limited time. This utility is gravitating towards unlimited use, fixed fee (advertising assisted) pricing model.

Much like past utility transitions, this one will mark a fault line – where some incumbents will attempt to protect their territories of past centuries, while innovators choose to shape the world of coming decades. Yet, much like Amazon had shown an incumbent can also choose to lead the coming revolution. Stakeholders need to make the implicit choice between taking advantage of the opportunity represented by this giant transition and defending against the inevitable change coming.

In our future posts we will look at each of these utility transitions in detail. More importantly, we will look at the underlying technology shift that empowers each transition, the business frameworks that govern the new utilities and the immense opportunities that the new utilities symbolize to innovators, investors and society as a whole.

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