Will Google Destroy Itself?

Google recently announced a new machine learning engine that it will make available to software developers. Machine learning is a form of artificial intelligence (AI) in which an application can learn from processing real data and become more proficient over time. By making the tool available, Google will enable businesses and entrepreneurs to use AI in wide range of new applications.

In the coming years, artificial intelligence is going start showing up in more and more places. AI will be incorporated into productivity applications and into the enterprise software used by large companies. I'm not talking about science-fiction level general artificial intelligence ("Open the pod bay doors, HAL"), but rather specialized or narrow forms of AI. Narrow AI applications can already land jet aircraft and beat virtually any human being in a game of chess. In the near future, they will be able to do far more.

Google's new AI tool is being offered as part of the company's cloud computing strategy. Cloud computing is a new model in which computer hardware resources as well as application software are made available on an as-needed basis, in much the same way that utilities like electric power are provided.

The thing you should know about cloud computing is that it tends to concentrate information, power and income. The information technology resources of thousands of businesses and organizations will increasingly "migrate into the cloud." One immediate result of this is increased concentration and automation of jobs. Information technology workers are already seeing significant job losses as a result of the move toward cloud computing.

Once artificial intelligence becomes integrated into the cloud, the effect will quickly be felt by far more than just IT professionals. Anyone with a knowledge-based job will be highly susceptible. Organizations will get flatter as more middle managers are eliminated. It's also quite possible that AI tools will be used to amplify the capabilities of low wage off-shore workers--allowing them to move up the value chain and compete directly with professionals who have high skill and experience levels.

And AI-enabled cloud computing isn't just about direct job automation: it will also allow larger organizations to leverage economies of scale, perhaps as never before. Companies like Wal-Mart and the big box retailers will gain, while smaller businesses continue to lose. Sophisticated applications will make it easier to run larger, more complex organizations with fewer people, and that will be an important enabler of corporate consolidations. Low interest rates are already driving a new wave of merger activity on Wall Street, and you can be sure that mass layoffs will follow.

The point here is that technologies like cloud computing and narrow AI are going to result in less opportunity for most workers--while concentrating income and power in the hands of the few (as if that is a new story). Corporations will need fewer managers and knowledge workers, while at the same time many of the small business opportunities that have traditionally led to middle class, or even upper middle class, success will continue to evaporate. The demise of the blue-collar middle class is already pretty much a done deal. College educated white-collar workers--even those with relatively high incomes--are next in line.

The broader trends that are driving income concentration and the destruction of the middle class--globalization, advancing technology, supply side economics--are of, course, not Google's fault. However, within the IT field Google is becoming a poster child for the concentration of wealth and power: and it is making important contributions that will accelerate the process.

But here's the rub: Google's current business model is almost entirely dependent on a world in which income--and therefore purchasing power--is at least somewhat reasonably distributed. Google's revenue comes primarily from its AdWords program, which allows businesses of all sizes to place highly targeted online advertisements.

AdWords is an enormously successful money machine, and it works because businesses know that among Google's huge number of users there will be a significant slice of traffic with a high interest in a particular product or service. Here's the thing though: AdWords advertisers aren't interested in reaching web surfers. They want customers--customers with discretionary income.

In the long run, as income becomes more and more concentrated--as more average people in the population find themselves unemployed or forced to take lower wage jobs--the businesses that advertise on Google are inevitably going to see more surfers and fewer paying customers. As that happens, they will drop out of the program entirely, or they will be willing to pay less for the ads, and Google's revenue will have to decline. If the economy continues on its seemingly relentless path toward increased concentration of income and consumption, then at some point, Google's advertising model will no longer be an especially effective way to reach the few people who still have money to spend.

Of course, if the entire economy continues on that path, then the viability of Google's business model may be the least or our worries. We already have BMW owners sleeping in their cars, and upper crust New Yorkers worrying about civil unrest or even revolution. Watch out.

Note: For more on AI, unemployment, the concentration of income, and the impact on Google's business model, see the free PDF of The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future (pages 67-73, 81-84, and 180-183).