Rather than writing about the market and the industry at the level of specifics, I have tried to take a more probing, macroscopic point of view and assemble my thoughts on what it is that has recently been giving me an uneasy feeling. At the start of 2013, I had a sense - it was almost a conviction - that there were changes under way throughout the world that were far wider in scope and far more momentous than I had anticipated. Perhaps I only feel that way because my perspective has changed as a result of seeing various things. I didn't have an opportunity to organize my ideas in writing before, but over the New Year's holidays I had some time to put my thoughts together. These are entirely my personal views.
- A startup with a staff of 50 supporting a user base of 400 million
Right at the end of last year, an article was published about WhatsApp, a smartphone app for free phone calls and messaging launched in the US in 2011. WhatsApp is similar to the LINE messaging service, which is popular in Japan. The number of active WhatsApp users worldwide in that month was said to be greater than 400 million, but what is astonishing is that the company operates with a staff of just 50. The world's Internet population is 2.7 billion, so it works out that one in seven Internet users is using WhatsApp. It is not possible to make a direct comparison, but nevertheless, it is a shock to consider that telecoms in various countries provide a telephone service for tens of millions of customers, but employ tens of thousands of people to run their businesses. The worldwide popularity of smartphones and the development of an effective, global distribution network for apps mean that a service can now be provided to a worldwide user base by a company with a surprisingly small staff. One could say that there is now an environment in which a company can expand on a scale and at a speed which bears no relation to the conventional tenets of business.
- From multinational companies to nationless companies
The following comments relate just to the field of smartphones, but since a company can, like WhatsApp, conduct its entire business virtually ignoring national boundaries, it is no longer possible to say which country a company operates from. Manufacturers, consumer electronics companies, restaurant chains, and others have localized and exported their products around the world, earning the title of "multinational company." However, while smartphone and app usage has become widespread and a user anywhere in the world can access a service in an instant, it can not be said that the service is based in any particular country. Rather, companies are active in the entire borderless domain of "online," and it is no longer very meaningful to ask "In which country is the company based?" With the spread of smartphones, perhaps one could say that Internet companies, rather than becoming internationalized, are becoming nationless. More than half of the revenue of the company I operate is generated in countries outside Japan, where the head office is located, and one could not really say now that it is a Japan-based company. Because resources move about freely online, it is difficult to identify the countries where economic activity is occurring.
Conventionally, economies have been conceived of in terms of nations, but now, the notion of an economy no longer fits within the framework of nations, and is beginning to become established as an independent concept. It is analogous to when computer operating systems evolved from running on a single computer to being a huge platform used across numerous computers.
- The paradox of globalization
Globalization was originally proposed as a way for developed countries to seek additional growth opportunities abroad, after it became difficult to achieve economic growth domestically. It was premised on international competition and the pursuit of ever-increasing economic growth. Historically speaking, it's nothing new. It has been a reliable strategy that can be traced back to the age of the European voyages of discovery, beginning in the 15th century. In Japan too, there are many fields where relatively few products and services are produced domestically, and work is going offshore as a result of the search for cheap labor. Indeed, I myself feel a sense of alarm at the prospect that the nation of Japan might be regarded as dispensable in the future.
However, I have lately come to feel that there is a great paradox here.
Actually, when a nation exports its industries with the aim of achieving steady economic growth and the private sector begins to operate internationally, there tends to be less reason, in fact, for the nation itself to exist as a unit. As someone who is running a business, something that I feel strongly is that workers in every country have the same motivation: they seek a better life for themselves and their families, and an equitable distribution of opportunities. While diplomatic relations between countries can sometimes be strained, at the local level, that sort of tension is rare. The values of people around the world who use an iPhone or a Galaxy, play Candy Crush, and wear the same brands of clothing have converged. The younger the age group you look at, the more pronounced this trend is. Needless to say, the national context has a profound effect on language and culture, but its influence on daily life i.e., economic activity, is steadily declining. I feel it is ironic that, as a result of nations around the world exporting their industries in search of greater economic growth, people come to live their lives without a consciousness of national context.
- Enterprises that build social infrastructure
Meanwhile, flowing in precisely the opposite direction, amid globalization and the spread of the Internet, the services provided by private companies lead to the development of social infrastructure, and in some cases, the companies take on some of the characteristics of public utilities. What I mean by a public utility is an enterprise operated by the government and funded by taxes, which invests in social infrastructure needed by everyone, such as roads, water supply, and electricity.
A prime example of a company that has developed social infrastructure is Google. Wherever the Internet is available, using Google, anyone can access information stored across the entire globe and fetch whatever they want to look at, free of charge. Before Internet search existed, libraries served a similar function, but these are typically funded by taxpayer dollars. Google is, of course, a private company, but the search engine's operating costs are covered by the fees paid by advertisers. Occasionally, someone on a Web forum will refer to these advertising fees as a "Google tax," but I don't think that is a particularly apt term.
Another example is Facebook. With 1.1 billion registered users worldwide, Facebook has about 40% of all Internet users signed up to its service. In terms of scale, it is comparable to the population of India. In terms of function, it is similar to the family register and resident registration systems administered by the government. The proof of a person's existence in the world is provided, not by a public institution, but by that person's connections. Recently, I have been contacting people by searching Facebook for the name on their business card. I don't write to the email address on business cards much anymore.
This trend can also be seen in domains outside of the Internet. Tesla Motors, run by PayPal founder Elon Musk, is developing electric vehicles with reduced carbon dioxide emissions. Musk also runs SpaceX, a private-sector company which develops rockets for space exploration, and can now make rockets for one-tenth of what they cost previously. From the start, the development of space exploration vehicles and the like has been a domain for government agencies like NASA to invest in, and it has been too difficult an undertaking for private companies to tackle on their own. But now we have reached the point where it is feasible for a venture firm to take on such projects and run them as businesses.
Looking at these examples, it can be seen that, in terms of offering services for the benefit of all the people, there is no longer any difference between private companies and the government or the nation. In terms of function, one could say that enterprises are getting to the stage where they will be in competition with the nation. And because the services offered by a company can expand beyond national borders, such a company can even provide something that is needed by humanity as a whole, rather than just the people of one nation. In the future, we can expect that the division of roles between the private sector and the nation will become increasingly blurred.
- Social problems also expand beyond national borders
Economies are interconnected across the world, but now, even social problems are beginning to spread beyond national borders. Political and religious conflicts are inevitable, but all nations are now facing challenges that cannot be resolved by a single nation on its own.
The financial crisis that started with the collapse of Lehman Brothers, and other financial crises such as the ones in Greece and in Cyprus are all still fresh in people's minds. The effect of a financial crisis that occurs in one country is felt immediately around the world, as nations are susceptible to damage from a financial chain reaction. Because the economies of all countries are interdependent, they share the same destiny, as they are all elements of a global economic system. As returns have risen sharply, so have the risks. In addition, various issues such as global warming arising from our reliance on fossil fuels and poverty caused by population growth can no longer be solved by each country individually.
The international organizations that were set up after World War II, based on the power relationships between countries, did not implement fundamental solutions to problems, but instead had their resources diverted to the coordination of the interests and views of the countries involved, and they seem ill-suited to dealing with complex and rapidly changing problems. These problems are no doubt extremely difficult to solve within the framework of the conflicts of interest and competition between nations. Finding solutions to these problems is not a matter of working on the quality or scope of the solutions. Rather, I feel that what is needed is a change in approach to the problems.
- Globalization for the solution of problems for the entire human race
I think that in finding solutions to these problems, the entities that are going to be important are the private companies and individuals who can transcend national interests in pursuing their activities. As I mentioned above, it is actually private entrepreneurs who are at the leading edge in working on the energy problem, the reduction of CO2 emissions, and space development.
It can be said that, up to now, globalization has largely been about representing the interests of a nation and being part of a national strategy for achieving economic growth. As in the world of finance, it can be a zero-sum game where there are winners and losers. It is a fact that, in developing countries, there are many voices raised in opposition to globalization on the basis that the rules governing globalization favor developed countries.
Really, if the interests of one's own country are placed first, it is going to be difficult to achieve this sort of multi-nation solution. I believe that, in the future, what is going to be required of companies and individuals is not the kind of globalization where they act on behalf of a nation in competing with the rest of the world; rather, it will be a form of globalization where the focus is on the Earth, so that solutions may be found for the problems that are common to people around the world.
- The Internet: starting to be more than a "useful tool"
The relationship between society and the Internet is analogous to the relationship between nations and the economy under globalization. When the dot-com bubble arrived in the second half of the 1990s, there was speculation that the Internet would alter the very structure of society, but with the collapse of the bubble, disillusion became widespread, and in the following ten years, the Internet was never more than a "tool" to be used in the service of society as it existed. It is my personal view that this situation has changed significantly since around 2013. My feeling is that the Internet is now more than just a tool to be used in the service of society, and that it is, in fact, beginning to redefine the very structure of society from its foundations.
For example, the leaking of information and hacking, which until now have been no more than issues of data security, have, with the advent of groups like WikiLeaks and Anonymous, become matters of great concern at the level of national security. It was the United States, which should have been the biggest beneficiary of IT, which suffered the greatest losses at the hands of these groups. Another example is Bitcoin. For centuries, governments have had sole authority to issue currency, but this is now starting to be challenged. There are concerns about how Bitcoin is going to affect the foundations of the world economy, and there are examples of governments restricting it, as in China. In addition to the cases mentioned above, there are countless other cases where industries have gone from being made more efficient to having their industrial structure transformed, so that existing players who were profiting from that industry have gotten into a difficult situation.
I think that these cases show that the effects of Internet technology are gradually being felt, not just at the surface level of society, but now at a much deeper level. The much-trumpeted dream of an Internet that would "reshape the systems of society" is gradually coming to pass, albeit 15 years late.
- Technology starts to redraw boundaries
1) The dividing line between outsourcing and doing the job in-house
The concept of work has changed dramatically in the past few years. The increase in telecommuting was at first seen as simply a resurgence of the young, job-hopping part-time worker trend, but in fact, in the context of the full-blown spread of the Internet, it has the feel of something quite different this time. It is very likely that it is not a manifestation of a life phase that people go through, but rather the result of changes in industrial structure.
If a company utilizes crowdsourced labor, then, even though it may not have a large workforce, it can access resources across the world in real time and in just the amounts required, making it possible to deal with an enormous amount of work while remaining small. In projects like app development, it is not at all unusual for a company which has a just a handful of staff to involve more than 100 people in development. The world leader in the supply of remote workers, oDesk, has nearly six million freelancers who complete work projects online.
When outsourcing is embraced, so that work becomes decentralized and is migrated to the cloud, it becomes extremely difficult to distinguish between what is done in-house and what is done externally. Because a huge number of people may become involved in a single project, that group of people can be thought of as a consortium of stakeholders. The customary notion that individuals each have a single job has changed, and suitably skilled people may become involved in multiple projects concurrently, so that even the distinction between one company and another may become blurred.
2) The dividing line between oneself and others
One respect in which the Internet is far superior to any other technology is "collective knowledge." Search engines like Google make it possible for people to instantly access information from around the world. In Japan, via sites like Nanapi, one can pick up knowledge and skills that other people have gained over a period of months. When everyone can access the same information, it becomes difficult to draw a line between one's own knowledge and other people's knowledge. By typing in a single word, everyone can call up the same answers, so we are now at a point where knowledge that hitherto ended up inside the brain of an individual is now added to the cloud to be shared with all of humanity.
When people can even share their experiences in real time on Facebook and YouTube, we have reached the point where there is hardly anything friends and acquaintances don't know about each other. In the future, if all things go on being Internetized and we get to the stage where people are constantly online, the borderline between ourselves and others will become increasingly blurred, and one can expect that the concept of privacy, too, will continue to change.
- What the printing press and the Internet have in common
Many times in the past, society and individuals' lives have been changed dramatically by the invention of technologies. Among these inventions, the one which is most similar to the Internet is movable type printing technology. It feels odd to call it a technology, but at the time it was a remarkable invention. Before the printing press, there was no custom of storing and sharing human knowledge: it was passed down orally. Because of the enormous cost of creating a book, it was only some members of the privileged class who were able to create or read a book. Knowledge was monopolized by elements of society that included the clergy and the nobility, and there was no way for ordinary citizens to get access to knowledge.
After Germany's Johannes Gutenberg invented movable type printing in the 15th century, it became possible to cheaply mass produce books, and this brought dramatic changes to society. Ordinary citizens could now buy books cheaply, and it became possible for humanity to store and share its knowledge. From this, ideas, philosophy, and scholarship flourished, and the sort of modern facilities we have now, such as libraries and universities, were created. With humankind now able to store and share knowledge, civilization rapidly developed. Later came the Industrial Revolution, and monarchs and church leaders withdrew from the center stage of history. In their place, business people, intellectuals, and military leaders, who allied themselves with capitalism and democracy, have taken the leading role in establishing the foundations of modern society over the past several centuries. Many of the values we have in common in modern times (freedom, equality, peace, and human rights) are notions that were disseminated by those groups during that period.
Both the Internet and movable type printing technology were, in the beginning, no more than tools for sharing knowledge and information. Both technologies are very much alike in that they spread rapidly after they were introduced, and evolved, altering the framework of society, and also beginning to transform people's daily lives. However, in the case of the printing press, there was a lead time of about 200 years from the time of its introduction to the time when it was in widespread use and bringing changes to society. A change occurs, another change is triggered by it, and the changes proliferate at a quadratic rate until a tipping point is reached. Only about 20 years have passed since the growth of the Internet really began to take off. However, in 2013 I felt that the Internet had reached the stage where the lead time was over, and that it was beginning to change society. I now believe that the feeling of uneasiness which I have often experienced in recent times in response to changes brought about by the Internet can be attributed to the Internet having reached this tipping point.
- The distinction between profit and non-profit
There have also been changes in the behavior that is the basis of capitalism: making money. Now that consumers are able to access information from around the world, companies can no longer fool them or fleece them by providing an overpriced service. If, for instance, an inferior product is offered for sale, word spreads instantly on the Web, and any person who is interested in the product will search the Web and see what people have written about it.
In the past, companies were able to exploit their superior access to information and political privilege to make profits. Now, consumers can get on the Web and investigate all the options, and find for themselves the best choice. Consumers have become significantly smarter, thanks to the collective knowledge of the Internet. I think that in the coming era, it is going to be difficult for companies to be profitable unless they provide services that offer genuine value. It will be an era in which value and profit will be evenly matched.
To give an example from my own experience, I am using a SIM-free smartphone. That is because when I have changed over to a different phone in the past, the way it was presented to me was as if there were no options but to sign up for a range of bundled services. And so I purchased a Nexus 5 directly from Google Play, signed up for a SIM card at 1,500 yen per month, and now I am using my smartphone without having had to sign up for any contract with a telephone company for a device. For telephone calls, LINE does an adequate job. Not only have I saved money by eliminating the need to sign up for superfluous services, I am also free to change my device, as I am not bound by some telephone company's complicated contract. Several years ago, this sort of arrangement would have been difficult, because there were no alternatives. Now, all sorts of alternatives are available on the Web, and anyone who has doubts about a particular service can find ways of getting round it.
On the one hand, even enterprises which previously appeared completely unattractive as businesses such as those based on research & development or philanthropy are attracting support from investors who see value in them and becoming established as profitable businesses. Tesla Motors' electric car is an example of an R&D-type project which attracted support and went on to become profitable. Following Tesla's success, established car manufacturers too have now committed to developing their own electric cars. If the major companies move in this direction en bloc, we may see progress in CO2 emissions and in the energy problem. To give another example, projects aimed at eradicating poverty are typically non-profit, philanthropic endeavors, but the Grameen Bank, which provides microfinance, showed a way of replacing this sort of activity with a profit-generating business. Kiva Microfunds applies the crowdsourcing model to microfinancing. If established banks recognize the revenue opportunity and get involved, it would result in progress in reducing poverty.
Conversely, most businesses that are established with making easy profits as the motivation will find that in a world of open information, competition will eventually make it hard to generate satisfactory profits. Looking at the overall picture provided by these elements, I feel that, while on the one hand, initiatives which bring value to society are now generating profit more easily, businesses which seek solely to maximize revenue focus too much on short-term profit and end up being bypassed by consumers or get caught up in an extremely competitive environment, making long-term profitability difficult. It may be that ten years from now, the distinction between profit and non-profit will have disappeared, and all undertakings will instead be viewed in terms of the value they deliver.
- Society in transition: the next ten years
I think that in the coming ten years, the combined impact of the Internet and globalization on society will be much more wide-ranging than I have anticipated. And during this ten-year period, existing structures will undoubtedly coexist with new structures. It may well be a time when various things that we take for granted will be subject to review, including the notions of success and failure, work, marriage, running a household, making money, as well as production and consumption.
Even if new structures would dramatically improve people's lives, and even if the technology to implement them is available, it takes time for people to embrace new values. And I myself, in considering the question of what an ideal society would be like, have not yet come to a conclusion. To be honest, I would like to observe the changes a bit more. Nevertheless, I can say that to be able to experience this era when "nothing is impossible" gives me a feeling of uneasiness mixed equally with a sense of anticipation. I expect that those who lived through the Industrial Revolution had similar sentiments. The people of that time wrote about such things.
The world has been changing faster in recent times. When somebody claims "That's impossible!" somebody else comes forward, almost before the words are uttered, to contradict the claim and show how it can be done.
Those who are participants in these historic changes are indeed fortunate to be involved.