Telco

Telco Rising

After a hard decade since the financial crisis and an even harder couple of years of capital markets derating, telcos are poised for significant value creation. Telcos are already beyond the digital chasm, with fundamental threats to their connectivity business model behind them. Six additional catalysts will provide topline and bottom line growth over the next years. Beyond financial considerations telcos are the natural local champions to make technology human-centered and socially useful.

Dark decades

Since their peak during the internet and 3G booms telcos have struggled to find their place. First, mobile internet was far longer in coming than expected. Some 3G auctions took place in 2000. However, it was not until a decade later, with the iPhone, that mobile broadband started to contribute substantial revenue. At the same time, the internet applications that telcos aspired to capture were opened up through net neutrality. This brought an amazing wave of innovation, but decoupled infrastructure investment from monetization. To finish, Telcos have suffered from a difficult to understand regulatory obsession. A sector that has consistently reduced quality-adjusted prices by 99.5% per decade has been in the regulatory spotlight. With regulatory goals focusing on introducing asset-light competition and achieving slightly faster price reduction (99.6% vs. 99.5%), instead of focusing on infrastructure development.

The last two-three years have been even darker. With mobile and fixed broadband massification bringing destructive price spirals in connectivity, accelerated by regulation. While internet services are dominated by once-in-a-century digital monopolies, the Big Techs. At the same time as the copper infrastructure of the 20th century is being substituted by fiber. And the small oligopoly of equipment vendor try to push 5G before users require it, much like they did with 3G. This combination of top-line stagnation and perceived investment pressures has caused a massive industry derating, which has brought valuations to historic lows.

A New Hope: The Digital Chasm already crossed

However, telcos are one of the few sectors that have already crossed the Digital Chasm. Other sectors like retail or media are still trying to find sustainable revenue streams in the digital age. Telcos, on the other hand, have already demonstrated that their core business model is safe. Attempts to substitute connectivity like Google Fiber or Facebook Aquila have fizzled. Disruptive ideas around low-altitude satellite constellations promise to tackle mostly remote areas, and just a fraction of today’s traffic.

Telcos have already demonstrated that they can handle the exponential growth of connectivity that the internet and digital transformation is bringing. Connectivity requirements continue to grow by orders of magnitude, with telcos prepared to service the avalanche. The regulatory and physical challenges of deploying completely new networks like fiber have also been navigated. Now, more and more parts of the world enjoy speeds and throughputs that seemed incredible just a decade ago.

The sector has a secure base from which to start with practically limitless demand. This base business is not threatened by substitutes. It has also demonstrated and incredible capability to transform and reinvent itself for ever-growing demand. It is true, that this connectivity base has been targeted by regulators focused on narrow price competition only, while allowing internet monopolies to build. But even considering this, a secure business that profits from digitization is something that few industries can claim.

Catalysts for Value: 6 transformative opportunities for telcos

Beyond the secure base that the ever growing demand for connectivity brings, there are six key topline and bottomline catalysts that telco will capture over the next decade to create value:

  1. Hyperconvergence. Fixed and mobile connectivity are already technically converged. Video and B2B Digital Services (Virtual Networks, Security, IoT, Cloud, Big Data) are converging fast with connectivity. Financial services, other content categories (e.g. gaming, AR/VR, eLearning) and digital home are coming next. Topline catalyst, at least doubling telco addressable market
  2. Big Techs need help. Big Techs are in trouble. The regulators, governments and public opinion have finally woken up to their unaccountable monopolist status. On top of that, they are starting to compete among themselves. With highly capitalized and digital native rivals the stakes get higher. They need help in the upcoming battle, and telcos can be powerful allies even with net neutrality. Topline catalyst, increasing telco relevance and capturing the increased addressable market effectively directly and through partnerships
  3. Regulatory rationality. Regulators, governments and specially the public have started to wake up to the danger of over-reliance on Big Techs. Countries start to worry that they might become irrelevant digital colonies to the US and China, with no strong tech players or jobs. This is leading to the search of strong local digital players. Telco’s happen to be those players. Extremely locally grounded, they define the digital infrastructure of a country and are totally invested in the country’s success. They also employ thousands of tech-savvy employees and support the local tech ecosystems. Topline and bottomline catalyst, with regulators changing their negative stance towards telcos allowing the build up of scale and investment to boost each country’s digital potential.
  4. Operating model digital transformation. We live at an incredible time in terms of the power of automation and personalization to improve the efficiency and customer experience of all companies. Telcos support some of the most complex service processes on the planet, so the opportunity is huge. Digital technology will be deployed to improve customer experience, while increasing efficiency and speed. So there is a massive transformation opportunity over the next decade from digitizing telco operating models. Bottom line catalyst, not only reducing cost but also improving customer experience and reducing significantly churn and its associated costs.
  5. Network and equipment virtualization. Beyond “normal” digitization telcos are experiencing their own special digital transformation. Networks are becoming virtual, allowing to define and manage them virtually. Increasing flexibility, scale and efficiency. Also bringing the possibility of substituting black boxes from a small oligopoly with whiteboxes with standard hardware and innovative software from a plethora of players. Bottom line catalyst, reducing cost and investment, increasing speed and eliminating friction. Also derisking vendor lock-in with the equipment vendor oligopoly
  6. Flexible asset deployment models. Virtualization, regulation and digitization allow to go a step beyond in terms of asset deployment models. It makes little sense to duplicate or even to fully own most new infrastructure telcos deploy. There is also significant capital with appetite for the stable growing demand that the telco sector is experiencing. Consequently network sharing and new ownership models are on the rise. CAPEX and ROCE catalyst, improving CAPEX efficiency at an industry level and reducing the assets necessary to capture deployment opportunities

Beyond this six tangible catalysts there are many new technologies that can bring further opportunity. AI, Blockchain, mixed reality, full APIfication, quantum computing and 5G will bring incredible opportunities that are still difficult to quantify. That is the icing on the cake, even more opportunity that could take telcos further. These opportunities give the long range growth prospects, once the six catalyst have been captured over the next 2-4 years.

Both the six catalyst and the opportunities beyond them are only very imperfectly captured in the capital markets industry vision. While investment banks have started to understand the potential over the last months, it is yet to be fully incorporated in target prices and stock prices.

Enablers for humanized technology: a mission for telcos

Finally, the role telco’s can have go beyond creating the infrastructure of the future and delivering attractive returns for shareholders. Telcos are the connection between technology and the people. In contrast with global remote Big Techs, they are deeply local: embedded in countries and local communities, employing millions of local citizens, providing local champions for stock markets and paying substantial taxes. Regulation and local infrastructure makes telcos fundamentally accountable to citizens and consumers.

The world faces a monumental challenge in ensuring that the technological genie doesn’t escape out of the bottle. There are fears about the end of work, technological elites who capture our data and make all the money with no accountability, alienation through digital devices, the threat of AI and much more. Telcos are the base of the digital economy and can be counted on to make technology human and local. Society will increasingly demand to go beyond connectivity and services. Human-led technology will mean reducing digital divides, digital wellness in technology’s use, citizen’s owning and enjoying their own data, tax and financial flows that reflect value creation, job opportunities and much more. Telco’s are uniquely positioned to respond to this demand and embrace a mission that goes far beyond just providing the cables and the signal.

*******

The telco opportunity: A secure sector, already through the initial painful round of digitization, with exploding demand and substantial catalysts ahead. The opportunity to become the local linchpin of technological transformation, avoiding the Digital Colonies scenario for geographies beyond Silicon Valley and Shenzhen. A depressed valuation product of years of regulatory obsession with price as the only metric.

This opinions are my own and don’t reflect any official company position from Telefonica or any of its affiliates.

Tech and Business, Telco

Embedded Connectivity: The next wave of telco growth

Telcos have transformed their business once every decade since the 80s: fixed voice, mobile voice, fixed data, mobile data. Fixed and mobile data for homes, offices and individuals will continue to be required in ever greater quantity, but will be difficult to monetize further (see Connectivity Explosion). The next wave for the 2020s seems embedded connectivity for everything. Embedded connectivity holds substantial promise but requires a rethink of many traditional telco orthodoxies.

A sector in continuous revolution over half a century

Telco might be a 100-year old sector but Moore’s law has allowed a continuous transformation of the products it offers during the last four decades:

  • The 80s were the last decade fully devoted to fixed voice in the home and the business premises. It was also a decade of transformation, with voice lines being fully automated and digitalized, finally eliminating human operators in calls. I am old enough to have seen some of the last human operators routing calls in a small village of northern Spain when I was a young boy.
  • The 90s were the decade of mobile voice for the individual. First in the car and briefcase, moving gradually to pockets. While early analog systems launched in the 1980s (1979 was NTT in Japan, the earliest system), it was only the decade of the 1990s with 2G that really saw the explosion of mobile phones. Deploying mobile telephony at scale was a huge undertaking which required creating new companies, often owned by the former fixed monopolies but independent from them.
  • The 2000s saw the resurgence of fixed, through fixed data for internet connections. In the late 90s no one expected fixed and cable players to be able to capture much value from the internet revolution. Up to 2001 ISPs like America Online or mobile players with 3G seemed to be a much more attractive investment. However, the open internet based on a standard TCP/IP and HTML broke down walled gardens and was powered into broadband by ADSL and cable (DOCSIS). This gave back value to fixed operators who gradually transformed their business from voice to data, and over the next decade from copper to fiber
  • The 2010s saw the promise of mobile data finally materialize through the smartphone. The mobile data promise of 3G didn’t materialize, except in Japan where i-Mode created a walled mobile internet one decade ahead of the rest of the world. This lead to a crisis for mobile players in the 2000s, with voice penetration already saturating which was somewhat alleviated by SMS and blackberries. It was only in 2008 when Steve Jobs and his iPhone saved the industry and provided a way to leverage mobile data fully. The smartphone came to its own with the deployment of 4G and created a mobile internet which has quickly overtaken the fixed one in time spent. It is dominated by the two smartphone OS duopolists, Apple and Google, who have created a “semiwalled garden”

All these developments were always unexpected and full of uncertainty. Today they might look like sure things, but at the time they were uncertain strategic bets. Mobile telephony was a niche proposition. According to a mythical consulting study mobile phones had a ceiling of 3 million subscribers globally (they got it at least three orders of magnitude wrong). Fixed data came out of the internet, something that seemed reserved for tech geeks in the 1990s and only came to the fore in the internet boom. Even in the internet boom it was ISPs and browsers that where expected to capture most of the value, not telcos. Mobile data took a decade longer than expected in coming, and was created almost singlehandedly by an industry outsider with an iconic device that a decade later has created the first trillion dollar company.

The candidates for the next wave

There are many candidates for the “Next Big Thing” beyond the smartphone in terms of the next user interface: Augmented Reality, Virtual Reality, Artificial Intelligence, Blockchain… As covered in Connectivity Explosion all these technologies will indeed require exponentially more connectivity with significantly enhanced performance, which telco technology is perfectly ready to provide.

However, as we are already seeing over the last five years, regulation and the ultra competition it engenders will not allow to capture increasing revenues in the individual mobile connection or the home/office fixed connection. Users will get increasingly better performance that will cover the needs for these “Next Big Things” at similar prices. The telco sector will continue to provide its 99,5% price-performance discount as it has done decade after decade (only semiconductors and hardware have managed a similar feat). This will slightly shrink the weight of communications on household expenditure and business expenditure, as traditional connectivity revenues grow slower than GDP.

The next wave will take us beyond individual and home connections, to connect everything else in the world. This phase has been called “Internet of Things” or “Internet of Everything”, embedded connectivity seems more precise. It has to do with embedding connectivity in everything in the physical world, so intelligence and interactivity expands from digital to physical. This explosion has the potential to be as transformative and significant as fixed data or mobile data.

The 2020s and embedded connectivity

This new wave of embedded connectivity has already started haltingly with M2M and IoT. However, it is not growing at a pace at which it looks poised to transform the industry yet. It is like fixed data before the internet craze really got on, or mobile data before the iPhone. Something that looks like an attractive niche rather than a transformative wave of growth. Telco valuations are suffering from this, as the previous waves of growth have already saturated and the new one is not ready to take off.

Embedded connectivity also seems to require a rethinking of the model at several levels. First, connections will be numbered in the billions and trillions, so current ARPU levels are completely out of questions, we need to move from “connection scarcity” to “connection abundance”. Moreover, it is just too complex for the customer to pay a monthly fee for each object, so we can expect one-offs that are embedded in the initial purchase price or in a subscription related to other services. Finally, customers don’t want connectivity, they want intelligence, so connectivity will become a component in a larger value proposition sold by another business to a third party, an “Intel Inside” B2B2X model.

The last part of the 2010s is proving a very tough period for telcos, as the new wave still needs to take off. As usual, financial markets can not see beyond what is already in the P&L and this has lead to extremely low valuations, similar to fixed assets before the ADSL boom. We can expect the cycle to reverse as embedded connectivity kicks into high gear during the 2020s, but it is difficult to forecast if we will have a specific event that triggers the change (like the iPhone or the internet boom) or if we will see a steady growth beyond all previous expectations (like with mobile voice in the 90s).

Tech and Business, Telco

Connectivity Explosion

After two decades of increasing use connectivity continues to explode for the home/office, for the individual, and now for inanimate objects. New technologies being deployed like AR/VR, AI, cloud, Blockchain and IoT only promise increased connectivity needs and requirements. 5G, Fiber, Edge Computing and softwarization present a clear path to fulfilling these exploding needs over the next decade. Prepare for a world in which everything is connected at ultra-high bandwidth, securily, automagically and with ultra low latency: it will have its advantages, but we will also have to fight Orwellian nightmares.

Connectivity continues to explode

It has been already almost two decades since the internet boom and bust. Quaint 48kbps and 56kbps modems that loaded the initial text versions of Yahoo! have been replaced by homes connected at hundreds of megabits per second (x10.000 from 1997) and smartphones routinely reaching tens of megabits (x1.000). Load times of minutes have given way to trying to reduce hundreds of milliseconds of a web page or app load. Progress has been staggering and cost has plummeted. The cost per Mbps for consumers is at least 99,98% lower in an internet connection comparing the late nineties with today.

We can expect this explosion to continue. All projections of connectivity use point towards continued exponential growth. Taking Cisco for the 2016-2021 period, it is projecting a tripling of internet data, at least a doubling of speeds, more than three connections per capita and close to two thirds of the world connected.

We can imagine this predictions being fulfilled just with streaming video and file sharing. However, customer needs will go even forward. New emerging technologies have increased needs and requirements for connectivity:

  • VR/AR represents an order of magnitude increase in content size compared with video, and it has interactivity making connectivity make or break. The amount of data that needs to be send bidirectionally for AR and VR will strain even today’s connections. And latency will need to be reduced below 100ms to avoid degraded user experience and motion sickness.
  • AI requires great quantities of data, including live video and audio feeds as well as huge datasets to be effective. Integrating AI seamlessly in customers lives also requires extremely low latency so the lag between command and response is not perceptible. Connectivity and data security becomes critical in a context in which we are continuously monitored and commands can control the real world.
  • Cloud is increasingly distributing computing and storage, requiring connectivity to tie it back together in a way in which the distributed nature of the system is invisible to both human and machines. Connectivity needs and requirements (i.e. latency, security) to make apparently simple tasks, like editing a document remotely, work seamlessly are still significantly greater than what we have today.
  • Blockchain’s key problem at this point is scalability, and scalability has to do with network performance. A blockchain is a distributed system and as such requires the network to make it work effectively. To run our most critical trust infrastructure on the blockchain would require extreme bandwidths together with low latency and first rate security.
  • Finally, IoT, the connection of all things to the internet, is itself a tremendous connectivity challenge. Not so much in terms of bandwidth, but in terms of latency, power consumption, architectures that allow millions of connected things, and the security to protect us from cybercriminals.

Overall, the connectivity explosion for the next decade will not only mean much greater speeds and capacities, but will also provide lower latency, lower power consumption, greater security, and greater scalability in number of connections.

Telco technology is ready for the challenge

Given this extreme wave of connectivity needs coming, is telco technology ready to cope with them? The answer is a clear yes. The industry has pulled together to create technologies and standards with significant runway in terms of performance and flexibility to meet the challenge.

Fiber will underpin all connectivity. While it hasn’t been widely appreciated yet, fiber deployments taking place across the world are equivalent to the paved roads that allowed our automobile-based economy. We are moving from copper, equivalent to earth roads, to fiber, equivalent to paved roads, and we are doing it quickly and efficiently. Some countries like Japan, Korea or Spain are almost finished in their transition. Fiber infrastructure has the potential to take us very far, with GPON technology already capable of several orders of magnitude of improvement of our average speeds with negligible latency and much lower power consumption and line faults.

5G is built on fiber and softwarization. 5G is the latest industry buzzword and it represents the next standard for mobile communications. This standard is already built with fiber and softwarization in mind. Beyond gigabit speeds we can expect 5G to deliver millisecond latency, much greater flexibility in network architecture, and another level of security through network slicing. While speed and latency in 5G will be evolutionary with 4G, 4,5G and 4,9G, its architectural flexibility and the security provided by network slicing provide a paradigm jump similar to fiber.

Edge computing will optimize latency, bandwidth and data security. Increasing bandwidth, reducing latency and improving security and privacy in the last mile access with fiber and 5G won’t be enough for many applications. The datacenter needs to be closer to the customer, both for performance and data security. Fiber, softwarization and improved datacenter technology is making it possible to deploy “mini-datacenters” in telecom infrastructure or even at the customer’s home or office to make this real.

Softwarization will make the network liquid. Finally, the telco network is being digitized, with specialized hardware losing importance to edge computing and network software. Once the network is softwarized it becomes much more flexible, as happens in all transition from atoms to bits. This is the silent transformation that makes all the other technologies so powerful.

In summary, technology is ready. The only risk some countries might face is making the deployments economically unfeasible through regulation. A natural monopoly like telecommunications needs and benefits from regulation. However, some regulators, especially in the EU, have shortsightedly prioritized short term consumer price reduction (making the 99,98% cost per Mbps reduction a 99,985% reduction) vs. industrial policy for innovation and creation of the infrastructure for the long term economic growth and leadership. The EU hasn’t created any of the Big Techs, has almost managed to destroy its technological lead in mobile with Nokia overthrown in handsets, and the equipment providers are under siege from China and Korea’s much more long term focused industrial policy.

How will the next wave of connectivity change your life and your business?

Picture a world in which connectivity is so ubiquitous, powerful and secure that it can basically transfer all information (including live 360 video) instantly. Private secure connections can be created and decommissioned in milliseconds, completely through software. Processing and storage capacity in the edge allows to perform most computation and storage really close to where the information is being generated, without having to surrender ownership of the data.

A physical store might have even greater data granularity than ecommerce, understanding and analyzing continuous video feeds without compromising user privacy. A doctor might be able to experience a patient fully even if she is hundreds of kilometers away and call on a specialist for support if needed, without sensitive health data being in danger. A teacher might be able to take students into an immersive trip into whatever is being studied, with students attending physically or virtually and having real-time personalization adequate to their level of understanding. This is only some of what we can imagine now, but as the internet and the smartphone revolutions showed our current imagination is a poor guide to what could happen.

Of course, there are also dystopian scenarios already being deployed and many others that can be imagined. China’s social credit system with complete monitoring and censorship of citizen’s actions in the digital and physical world will only be further empowered through the new wave of connectivity. This kind of 1984-like monitoring is in conflict with western values like privacy and freedom. And we shouldn’t only fear state actors, the last months have put companies like Facebook or Google on the spotlight for similar reasons.

So prepare to take advantage of the instant ubiquitous connectivity, but also prepare to fight against whatever intrusions it starts to allow on our hard won rights. As Bill Gates famously said: “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten.”

Tech and Business

A New TMT Hypersector

During the first internet boom, 20 years ago, there was ample talk about the convergence of Telco, Media and Technology (TMT). Now, the last months have completed this convergence, creating an scenario that would have been difficult to imagine back then.

First, eight new technology giants have emerged, threatening to take over the world. They started in Digital Advertising (Google, Facebook, Tencent, Baidu), Digital Commerce(Amazon and Alibaba), or managed to transform their way from traditional PC software and hardware (Microsoft and Apple). Now those eight companies have grown into unstoppable behemoths that dominate the top 10 most valuable company list and are worth over 3 Trillion dollars. They have expanded to take over adjacent industries like media and IT infrastructure, they took control of the smartphone age, they buy up companies that threaten their dominance and they are betting hard on AI as the new paradigm to continue their dominance.

Media has finally, and painfully, converged with Telco and Technology. Print media was decimated and has mostly moved to digital, with even the largest properties struggling to hold their relevance. Pay TV is progressively integrating into telco (Liberty into Vodafone, Direct TV into ATT) or content (Sky in Fox). New content majors have emerged, Netflix already more valuable than any other media company and Disney completing its transition to a full range media giant. Traditional majors are being bought up by telco (Universal by Comcast, Warner by AT&T), tech players (Columbia by Sony), with Fox up for grabs between Comcast and Disney, and Viacom embroiled in a corporate dispute about its future.

IT infrastructure and hardware is being taken over by cloud, which has been taken over by Amazon, Microsoft, Google and Alibaba. This is putting great pressure on traditional blue chips like IBM or HP, which could be quietly moving to irrelevance. Only the technology giants seem to have the scale, skill and daring to conquer this new world. The cloud dominance of only a few companies could eventually have knock-on effects on other industries like hardware or chips.

Business Software is in full transformation with the traditional players (SAP and Oracle) having been able to buy their way into the new world world of Software as a Service. The price they have paid is to dilute their shareholders by buying innovation, in a similar way to pharma companies, and to admit three new players into their oligopoly. Salesforce, Microsoft and Adobe, have improved their position and now have joined SAP and Oracle as key providers to many large and small companies. Beyond the new Big 5, there has been an amazing explosion of innovation with tens of thousands of SaaS companies creating new software, which is only comparable to biotech innovation in the pharma sector.

Telco keeps its place in the world as the gateway to the new connected world. A couple of years ago, connectivity seemed under fire, with Google Fiber or Facebook Aquila apparently focused on eliminating telcos from the equation. However, the Big Techs realized that telco was about perspiration and territoriality, while they are about inspiration and global scale. In consequence, they have abandoned their connectivity projects and moved to work with the telcos (e.g. Facebook with TIP and Google with RCS).

Device manufacturers lost their position and a new set regained it again. The pre-smartphone ecosystem was almost completely wiped out, with Apple and Samsung becoming the only profitable games in town. Only recently, did the Chinese players (Huawei, Xiaomi, 1plus1,…) manage to recreate a competitive ecosystem on the Android part of the equation.

Internet services have been captured mostly by the Big Techs, either directly or through acquisitions, and some independent unicorns. Messaging and communication with Whatsapp and Skype. Social networks with Facebook, Linkedin and the new wave (e.g. Instagram, Snapchat). Only some specific verticals like transport (e.g. Uber, Lyft) or lodging (e.g. AirBnB) have been large and independent enough to create their own ecosystems

The new TMT Hypersector is very different from what could have been expected 20 years ago in the eve of the dotcom boom and crash, or even 10 years ago at the start of the smartphone revolution. We can only guess how the next ten years will evolve for each of the subdomains and for the dominance and balance of power among players.

integrated reality, Tech and Business

Facebook’s F8: VR First

Facebook’s developer conference F8 gives great information on what the company is proud about and what are its priorities. This year two highlights stand out: its commitment to creating an iPhone moment in VR and its deep acknowledgement and willingness to tackle its social responsibility after Cambridge Analytica. While the mea culpa and resource shift to safety and privacy has been much talked about, the VR First mantra in Facebook is still underappreciated.

VR’s potential iPhone moment

Time has given the unveiling of the iPhone mythical status. Mobile internet had been severely hyped with the launch of 3G in the early 2000s, but usage had never lived up to expectations. Mobile browsing was only happening in Japan through iMode, while even the most advanced “smartphone” models from Nokia were driving very limited use. Steve Jobs managed to take mobile data across the usage chasm with the iPhone, creating a new dominant interface for the Internet over the last ten years and more than three quarters of a trillion in value for Apple shareholders (from less than $100 billion in 2018 to close to $900 billion).

VR is in a similar place to mobile data pre-iPhone. It has been severely hyped, many players have been putting out headsets but nothing is catching on. VR and AR are still stuck in the wrong side of the innovation chasm, with only techies and geeks using it. Many in the tech industry have acknowledged the new VR/AR winter and downplayed their ambitions. However, Facebook continues to push on all cylinders.

Maybe dating or watch party for Facebook, Group video for Instagram and Whatsapp, or instant translation for Messenger might have been more flashy announcements. However, VR/AR is the area in which Facebook’s commitment and investment is clearer across the board. Its Oculus Go $200 headset could be a game-changer. Its Rooms, TV and Venues are also creating new social use cases for VR that could go viral. Beyond that, Facebook is working to overcome one by one all of the problems VR still has. Overall it seems Facebook is fully committed to VR and it will doggedly pursue creating the “iPhone” of VR through Oculus and seeding the “VR Appstore” with content through its other properties.

It still has not been made explicit, but Facebook has a “VR-first” smell to it which is different from the other Big Techs, which are all following a Cloud/AI first strategy. Its other two long term strategic priorities, AI and Connectivity, seem to be important enabling elements, while VR/AR is the one that will “bring people closer together”. Facebook has unique capabilities that could make it successful: technical capability, consumer sensibility, user experience focus and a depth of VR/AR capabilities in its Oculus unit which is unrivaled by the other Big Techs.

Facebook had a near-death experience with mobile which has led it to try to define its own destiny in the next interface transition. Mobile seems to be reaching maturity, and smartphones are increasingly banal in their differentiation focusing on increasing megapixels and number of cameras. VR/AR could be a transformative interface that leads to a new wave of deeper person-machine integration. If Facebook manages to pull off its VR iPhone moment we could see it skyrocket from the smallest of the Big Techs to a dominant force. We can expect Zuckerberg to do it in his own terms, Jobs was the paranoid perfectionist that wanted to surprise the world in a big event, Zuckerberg seems more the relentless engineer who gets there in sprints by “moving fast and breaking things”. So Facebook “VR iPhone moment” might look more like a continuous improvement curve, rather than a big announcement. However, if the VR interface vision is realized the change and opportunities created will be at least equivalent to that of the momentous iPhone presentation.

Europe, Inteligent Processes, Values

Enlightenment Now: A European Call to Arms

In “Enlightenment Now” Steven Pinker shows how the world is better than ever thanks to the values of the Enlightenment, but declinism and misunderstanding are leading us to doubt the foundations of our progress. He calls for people to reclaim the pride and moral conviction once rightfully associated with Enlightenment values to continue progress and challenge the new problems we are facing. Europe has a unique responsibility to answer this call to arms and show that Reason, Humanism, and Science can lead to an alternative way of life which is poverty-free, ecologically-balanced and meaningful while at the same time respecting Human Rights and Democracy.

“Enlightenment Now” is Steven Pinker’s latest and most comprehensive book. It follows in the footsteps of “The Better Angel of our Natures” to continue to demonstrate that the world is getting much better, much faster, whatever our survival-optimized brains think. Then it quickly turns to why this is happening, the values of the Enlightenment: Reason, Humanism, and Science. And how a majority of Enlightenment-friendly citizens is letting this progress slip by turning or permitting more demagogic doctrines to flourish.

Pinker starts by setting out the values of the Enlightenment, Reason, Humanism, and Science. Explaining how these values gradually took over from values easier to implement in our simian brains like Superstition, Deism, and Declinism. It then goes on to demonstrate empirically how these values have brought forth the best period ever in a wide number of dimensions:

  1. Violence is orders of magnitude down whatever measure you take and peace has become the norm
  2. Health has improved dramatically throughout the world, with the country with the shortest lifespan today (Swaziland at ~50 years) matches the one with the longest life expectancy in 1890 (Sweden at ~50 years). Safety from murder or accident has also been improved beyond 10x in most cases. Even Terrorism has improved, even if it is anecdotical in terms of the real risk it represents
  3. Poverty is being reduced at an astounding rate with the extreme poverty reduction millennium development goal being reached 5 years ahead of schedule
  4. Inequality having been reduced substantially at a global level, even if some middle classes in developed countries have lost ground compared to the rich.
  5. Democracy and Human Rights have expanded across the world with increasingly higher standards across the board.
  6. Quality of Life and the Standard of Living has multiplied. With technology allowing a kid in sub-Saharan Africa more access to communication, information, and entertainment than a US president had two decades ago while work hours diminish and leisure increases. Even measures of happiness and psychological well-being have improved, even if they are subjective and difficult to standardize.

At the same time, Pinker recognizes that the majority of us doesn’t seem to recognize this and many tend to think the world is actually in decline. This is related in part to our biological information processing biases, the way the news industry works, and the incentives of populists and pundits. At the same time, there are a number of real problems we are facing as a species which need a solution:

  • Substantial poverty, violence, war and human rights violations in many parts of the world which still need to be improved beyond the incredible progress we have already made.
  • Climate Change and environmental destruction, which we have the technical prowess to tackle but which are a grand-scale “tragedy of the commons” that could endanger our civilization, standard of living and progress.
  • Winner-take-all economic dynamics and automation that are leaving a substantial part of the population in developed countries with limited access to economic opportunity with financial and psychological consequences, unless met with redistribution at a new scale.
  • Limits to the current implementations of democracy which lead to radicalized partisanship and bias, anti-scientism, “post-truth”, populist alternatives and a generalized distrust of institutions and disenchantment with democracy itself.
  • Finally, “existential dangers” are out there, with nuclear annihilation being still a real and present danger and others like AI-replacement of humans potentially lurking in the future.

However, the real threat that Pinker perceives is that declinism and disillusionment have sapped the popular support and faith in the Enlightenment values. An epidemic of lack of meaning, psychological issues and chemical addictions in the developed world are pushing people to embrace more primitive ideologies. Ideologies that have already shown their fatal flaws, but that are attractively simple and comforting for our brains:

  • Populist authoritarianism, which as Donald Trump has shown in the US is a direct consequence of economic disenfranchisement, wild inequality, and democratic manipulation. It could also sap the ability to keep progress going and forestall dangerous developments (e.g. Climate Change)
  • Tribalism, with calls to put race, nation or other supposed “natural groups” in the circle of trust, while keeping “others” out.
  • Religious fundamentalism, especially in the Muslim world. Where strict adherence to scripture is freezing the development of progress of a large part of the world which was at the forefront six centuries ago and now accounts for most wars, terrorism and many human rights violations.
  • Illustrated authoritarianism, embodied in China. In which a technocratic elite decides what is better and implements quickly and without opposition.

In the end, the book concludes with a strong call to arms. We need to reclaim the pride and moral conviction of our enlightenment ancestors to defend and expand Reason, Humanism, and Science as the values that have brought prosperity and happiness to millions. We need to continue to push these values as the way to overcome existing and coming challenges, and defeat and defuse long dead alternatives which are threatening to come back even if they have proven to be disastrous already. Pinker stresses that the “we” that spouses this values is the largest and growing section of the population. However, the more virulent ideologies like authoritarian populism or religious fundamentalists are able to make much more noise as they are excited to concerted action.

I believe this call to action is especially relevant for Europe. The world needs Europe to show that there can be another path beyond authoritarianism, inequality, and fundamentalism. A path based on the European values of democracy, human rights, the welfare state, freedom, and progress. Europe is one of the largest economies and talent pools and the best place to live in the world. However, we are still under the cloud of shame and self-doubt brought by two world wars and the crimes of colonialism. We need to embrace our mission and show the world that technology makes it possible to create a poverty-free, ecologically-balanced and meaningful way of living while enjoying human rights and democracy.

In a sense, the US did its job in the second part of the twentieth century promoting progress, democracy, and human rights, China has taken hundreds of millions out of poverty in an orderly and efficient way, and now it is up to us in Europe to contribute and show that a better world is possible.

SaaS, Tech and Business

10 expensive lessons from the startup world

In my experience as an investor, entrepreneur and startup advisor I have learned a number of lessons. They are fully aligned with the advice you get from startup and VC gurus, but at least for me, it takes a bit of pain in my wallet and my pride for the lessons to really sink in. I hope I can make it slightly cheaper and less painful for others, or even to prevent them from making at least one or two mistakes.

expensive

Startups are a wonderfully invigorating experience. I have been a full-time operator in two, have advised extensively five, have invested in over 10, and have seen countless examples. I find startups incredibly inspiring as a professional experience and startup people a lot of fun and learning to be around. You get to do almost everything in each function, you are creating something from scratch so you can move fast, without bureaucracy. You are inventing so you need to creatively design an experience for a customer. It is really a great package that is a lot of fun.

At the same time startups usually imply a significant short-term opportunity cost as most of the equivalent compensation is equity. And they can be very stressful, there is never enough time to do everything, and you experience a very quick succession of highs and lows. With the highs being very high, but the lows being really low.

In the last years, I have read a lot of stuff about startups. When I did my first one in the internet boom there was almost nothing, not even the term or the glamour. Now, you have great textbooks on how to do things and what pitfalls to avoid. Still, making a startup work is really difficult as a lot of moving parts have to fit and work out.

I have distilled the top 10 mistakes I have made myself or seen made. Nothing new but even if it helps just one person avoid a mistake well worth the time writing. They are mostly relevant to B2B tech plays, especially SaaS, which is what I am familiar with, but they probably translate to other domains too.

  1. Tech is king. A tech startup has tech in the name for a reason. It depends heavily on digital technology and as such tech talent is the key competitive advantage it has. Forget about the glitzy business plan, the domain expert, and the ex-consultant. Tech founders and tech talent are priority number one. Tech talent will determine your speed to iterate and your value for a potential exit. Tech giants like Facebook mainly buy and look for engineers, the rest is overhead.
  2. Pain-killer. Of course, many startups with outstanding tech founders fail. For the most part, this is because they build things no one wants or just “vitamins” that will make life better but are not absolutely necessary. Startups need to offer pain-killers for a big bleeding wound that someone has. Alternatively, they need to pander to one of the seven deadly sins as Linked In founder has famously said. If people don’t scream for your product you probably are onto a “nice-to-have”. That is going to take too long to sell to survive, even with people telling you that they should be using it.
  3. CEO Sales leadership. The CEO is, among many other things, the salesperson-in-chief and evangelist of the company. A CEO that doesn’t go out to sell will have trouble finding traction. This is especially difficult for technical founders that sometimes are not used to sell and communicate. Of course, selling only means in-person selling for some products, but the CEO will always need to be close to the customers to listen to what they really need. A CEO that isn’t always selling their product (in their own unique way) is a big red flag.
  4. Customer personas and budget. This is very much B2B, you need to know whom you are selling to and the budget line item you want to be part of. It might take time to discover, but it is inescapable. Only people with budgets buy products, and people have job titles and worries that come with them. Even if you are selling to a small business owner that determines budget autonomously you will have to fit in some of her mental categories.
  5. Long-term commitment and passion. The stories you hear about startups in newspapers are about quick fame and riches. The stories you hear from entrepreneurs are about 7 to 10 years of hard work and overcoming disappointment. Your only chance to slog through those hard years with a steadily increasing opportunity cost is if you are really passionate about your goal. So take this as an at minimum 5-year (realistically 7+) decision and make sure you are so passionate about the topic that you will be happy even saying “at least we tried” at the end.
  6. Founder alignment and culture creation. Being co-founders is like a marriage, but seeing each other all the time and having grown-up kids that you have to motivate to work for much less than they could be making someplace else. You need to be totally aligned from the start and keep that alignment over time. Don’t paper over disagreements rather tackle them head on, get your prenuptial agreement (aka shareholders agreement), and make sure you agree on which culture you want to build.
  7. Anti-goldilocks talent. Talent in startups is tough. You have infinite work so you would want the best talent, however, you always have insufficient money so you always want the cheapest talent. As the CEO of Blackline said in the last SaaStr you have to choose two of cheap, talented and not crazy, and you can’t afford anything but cheap and talented. The consistent advice I have heard is to go towards three extreme profiles: (1) a few absolute stars that have done it before, as they will drive incredible impact and leverage on others even if they are expensive, (2) many cheap, enthusiastic and hopefully talented very young talent that hasn’t much experience but wants to learn, and (3) talented people who are quirky enough that they find it difficult to work in large corporations. Avoid someone that is reasonably cheap, talented and sane, you want to go to the extremes, goldilocks talent is better for corporates.
  8. Funding. You need money for everything. Even if the amount is much less than ten years ago you won’t able to build the product, sell to customers or deliver them the promise without money. If you are short on money you will spend all your time worrying about it and solving the problems it causes. Of course, funding doesn’t mean VC funding. You can have customers fund your startup and bootstrap it successfully even if it takes a bit longer. Just avoid being unrealistic about being able to do stuff without money, or hoping that a round of funding will materialize from thin air. Money is your gas and you will get nowhere with your tank empty.
  9. Data and analytics. Product, Technology and Sales have been the traditional pillars of startup success. Now Data is claiming its place in the table. Analytics will allow you to create much better product much faster and to sell a lot more much more profitably. Who is your analytics founder? You need one, so get it from the start.
  10. Family sport. On a more personal level, you can’t get into this alone. Your family and your friends have to be your support group. You won’t be able to talk or think about anything else, you will work 24×7 (even if you can do it from home), you will only be making money at the end of the rainbow, you will have at least a couple of horrible downs per month, odds are against you. Have you told your loved ones what they are getting into? Have they bought the ticket? You’ll need your loved ones to get you through the bad times and support you in your probable failure so make sure they have your back.

This doesn’t intend to discourage anyone. The list of obstacles is long, but the fun and professional and personal growth for trying is amazing, even if you don’t get the pot of gold. Just be aware of what it requires to have a chance and what sacrifices you will have to make. Newspapers, LinkedIn, Twitter and business books only talk about the exceptionally good cases because that is what people like to see. You will experience the full distribution of potential outcomes and need to be ok with them, even if the end you manage to get to the pot of gold through hard work, talent and luck.

Bioprogramming, Blockchain, Digital Governance, Energy and Transportation, integrated reality, Inteligent Processes, Neurogamification, Tech and Business

Beyond Digital: 6 Exponential Revolutions – The Book

I have put together my explorations of Exponential Technologies in my new book “Beyond Digital: Six Exponential Revolutions that are changing our world” (en castellano “Más Allá de Digital: Seis Revoluciones Exponenciales que están cambiando el mundo”) which you can find on Amazon both in physical and digital format.

The book is my attempt to give anyone who wants to understand what is happening a window on six new waves of change that are coming our way through an accessible understanding of the technological underpinnings and plenty of real-world examples. The six technological revolutions I cover are:

  1. Intelligent Processes. The application of AI to information processing and the transformation it will represent in software, business, and government processes. How many processes that now require human intervention will be digitalized through AI allowing cheaper, faster and higher quality outcomes. This could be the end of drudge work and lousy customer experience but might bring significant technological unemployment and inequality
  2. Integrated Reality. How IoT, Virtual and Augmented Reality, Robots and 3D printing are blurring the lines between the physical and digital worlds. Allowing us to interact with the physical world with the same ease we do in digital, and to embody ourselves in the digital world with the same subjective experience as in the physical world. This will bend our physical world even more to our will but could create alienation and escapism as in Ready Player One or a techno-controlled police state that makes 1984 seem liberal.
  3. The New Energy and Transportation Matrix. How solar, electric and autonomous technologies will change how we produce energy and transport ourselves. Potentially bringing an age of free and clean energy and swift and secure transportation. We could potentially be able to overcome global warming, ecological impact and the toll on human lives and time that our current transportation system takes. At the same time, this new matrix will tear down the energy and transportation infrastructure jobs on which many of us depend.
  4. Digital Governance. How Blockchain technologies together with cryptography and the cloud are ushering a new age of financial markets, trust, and law. Digitising money, trust, contracts and the law to give them the same digital speed and quality we have grown used to in the digital world. Still in its early stages, it holds the promise to make our world freer and fairer, with the parallel dangers a bug or a virus could have if computer code runs our financial, legal, and even democratic systems.
  5. Bioprogramming. Understanding the code in which life has been written and learning to manipulate it is given us surprising power and flexibility in using and changing life for our own purposes. The ability to edit, program and even build from scratch living organisms, allows us to change living beings like we change computer programs. With amazing potential in terms of healthcare, human augmentation, and biofabrication, but unexpected risks as we play Mother Nature at an accelerated rate.
  6. Neuroprogramming. Our understanding of neurobiology and neuroeconomics is decoding how our brain, the most complex structure we know of in the Universe, operates and thinks. Being able to understand our neural circuits is giving us new paths in creating technology that replicates the best design principles of our brain and interacts with it effectively. It will be used to further accelerate our technology, augment human capabilities and cure the human suffering linked to brain disease, at the same time it has the potential to take digital manipulation even further robbing us of free choice.

The book would not have been possible with the help of my wife, my family, my friends, my colleagues in Deloitte and McKinsey, the readers of my blog and some dear readers of the beta version of the book who painstakingly read and help me improve the English and Spanish versions of the book. I am really grateful to all of them. As Mario Vargas Llosa says: “Escribir no es un pasatiempo, un deporte. Es una servidumbre que hace de sus víctimas unos esclavos” (“Writing is not a hobby or a sport. It is a bondage that makes slaves out of its victims”). That bondage is mostly born by those around as the slave happily bangs on the keyboard.

Tech and Business, Values

Technology for People and Planet

We have a unique opportunity to improve billions of lives and the whole planet through the technological revolution. However, myopic profit and power maximizing behavior is creating more problems and existential risks rather than solving the ones already on our plate. We need to put values at the center and use technology at the service of people and planet. In Europe, we have the opportunity to showcase to the world that this is viable.

Technology is changing our world faster than ever, and new trends like AI look poised to transform it even further. At the same time, we seem to have lost sight of the values and ethical underpinnings of the technological transformation. Democracies have been manipulated, personal data sold, employment and wages are at risk, and China, the US, and Rusia seem to be locked in a new Cyber cold war. We need to remember what we value, liberty and the pursuit of happiness, giving to each according to her needs, making our little blue dot sustainable. If not, we have the risk of ending up in some dystopia created by mindless technology.

There has never been a time of such opportunity through technology. Since the industrial revolution, we have gotten used to a breakthrough every handful of decades: the steam engine, the internal combustion engine, electricity… Now, without having finished the implementation phase digital revolution of the 90-2000s we have many different world-changing revolutions in the making. Artificial Intelligence (AI) has demonstrated its capacity to do more and more with less and less human intervention. Distributed Ledger Technologies like Blockchain have unleashed the early stages of a new wave of technological, financial and governance revolution with the likes of Bitcoin. The connection of billions of sensors and actuators is changing the fabric of our world through the IoT. New energy technologies like solar are promising to change our energy equation. Biotechnology is increasingly able to manipulate genes beyond our wildest dreams. Cybersecurity and cyber attacks are locked in a new deadly struggle that takes place in milliseconds. Neurobiology is showing us how the brain works behind the curtains, and creating the tools for incredible enhancement and irresistible manipulation.

Just one of these technological revolutions could have the potential to significantly improve the lives of billions of people around the world, and repair much of the harm we have done to our planet. We have the opportunity to accelerate even further the Millenium Development Goals, reducing hunger, poverty, disease, and war, while giving everyone a common base of education. We can transform energy consumption and tackle Global Warming before it is too late. In essence, we have the opportunity to bring an age of abundance and prosperity for all. We need to start focusing technology on people and the planet, instead of thinking just about profits and power.

Up to now, technology has been mainly viewed as an asset for financial gain or a weapon for hegemonic advantage at the nation-state level, rather than as a tool to help solve our problems. We have digital monopolies that have brought free applications we use broadly, but have monopolized the internet through network effects and aggressive disposal of competitors, manipulated human brains into addiction through careful design, and trafficked with citizen data to achieve previously unheard of valuations. We have an AI and Cyber-attacks race between the US, China and to a lesser extent Russia, with an understanding that “winner-takes-all”. And sadly, we have much less progress than is needed or possible to reduce existing problems.

This attitude has also created three additional threats looming, that might materialize challenging humanity further if we continue down the path of profits and power at all costs:

  • AI-induced job destruction might happen to different degrees. Some claim that this is business as usual, and we will “only” face 5 to 7 decades of declining wages for those who can’t adapt fast enough, like in the first and second industrial revolutions. Others claim that we are like horses seeing the combustion engine come and will be totally or mostly out of jobs, even if it could be a good thing. In both cases, we will have to deal with substantial social disruption and increasing inequality.
  • Techno-authoritarian dictatorships can combine traditional authoritarian methods with technology to create a police state that is almost impossible to overcome. China is already deploying pervasive face and person tracking and an integrated way of measuring a person’s “citizen score” to reward the good and keep close watch of those with less stellar scores. This can be used for good but has the potential to take Stalinist Russia to a whole new level. Combined with autonomous weapon systems it could allow a very narrow group to control a state or even the whole earth with little recourse. AI-induced job destruction is accelerating this by creating authoritarian leanings in the “digital have-nots” and threatening the logic of democracy.
  • General AI could render humans obsolete. While there is a strong debate on the possibility and timing of General AI, some people like Bill Gates or the late Stephen Hawking think it is important enough to warrant attention. How AI is developed and the consequences of the AI Arms Race that China and the US seemed to have embarked in could be earth-shaking. Scenarios considered by thinkers like Nick Bostrom and Max Tegmark run the gamut from human annihilation to paradise on earth, including AI-enhanced techno-authoritarian dictatorships.

It will be key to take technology back to values and ethics to manage the current and looming threats in a way that it is positive to humanity. We have seen what unbridled technology brings: user data breaches, manipulated election results, smartphone addiction, seemingly benevolent monopolies, reduced opportunity for most, and increasing inequality. At the same time, technology holds the power to improve the human condition and give incredible opportunities to everyone. Each of us and the organizations we represent need to place people and the planet first, even if that reduces profits and power slightly. Of course, only regulation will ensure a level playing field in which does playing for people and planet don’t get outcompeted by those who are willing to destroy in order to get more.

In Europe, we are in a unique situation. We don’t have the tech giants to “win” the unwinnable race, but we have a respected international position, a strong and large economy and a very developed talent base. We need to be the example for the rest of the world of how technology can be used for the people’s and the planet’s good. We need to put the regulation in place so tech players can bring innovation while respecting the values and rules of the game we cherish and hold true and contributing financially to sustaining a just society. If we manage to do it we might show that there is a viable alternative to unchecked techno-capitalism with masses of dispossessed citizens and techno-authoritarianism through a police state 3.0. This alternative will put people and the planet before other goals, like profit and power, which are really instrumental rather than fundamental.

Neurogamification, Tech and Business

3 ways in which a Neuron is better than a computer

Neurons are one of the most remarkable inventions of evolution. Modern neuroscience is allowing us to understand how neurons and the brain work at increasingly deep levels. This understanding has led an appreciation of how optimized neurons are for information processing. Some of the brain neatest tricks are being copied by technologists (e.g. self-organization) with more to come (e.g. information and energy efficiency)

Anatomy of a Neuron

We know since the early drawings of Santiago Ramon y Cajal thanks to the neuron staining techniques of Camillo Golgi (shared Nobel Prize 1904) that all neurons share four key elements. The dendrites are the input, they listen to the electric signals of other neurons or to the outside world. The axon is the output, it transmits the electrical signal from the neuron to other neurons or to muscles. The cell body (soma) is the power supply, supplying energy and chemicals for the neuron to function. The synapse is the connection, where an axon transmits the electrical signal to the dendrites of another neuron.

Dendrites are the input terminals, like the keyboard, mouse or internet of a computer. Most are internal, processing the signals from other neurons. A few connect directly to the outside world, allowing us to sense it. Our body has dendrites that are sensitive to a wide variety of stimulus including light (eyes), vibration, sound and movement (ears), physical contact and heat (skin), stretch and force (muscles), chemicals (nose and tongue). Neurons can have thousands of dendrites connected to other neurons and combine those signals with different weights and time delays. The signal processing is done analogically and is very versatile, making scientists think that a lot of our learning could be there.

The axon is the output terminal, it takes the electrical signal the neuron calculates and transmits it to the neurons that are listening to it. An axon is digital, it either has an action potential or it doesn’t. The action potential is a voltage spike from -70mV to 40mV that lasts milliseconds and has a refractory period of ~10ms. The initial segment of the axon is where the input of the dendrites determines whether the action potential happens or not by an extremely ingenious electro-chemical process that was characterized by Huxley and Hodgkin (Nobel Prize 1963). Consequently the axon “speaks” to the dendrites through trains of electrical pulses in the hundreds of Hz in frequency.

The cell body or “soma” is the power supply. Like any other cell, it has the instructions (DNA), the power supply (mitochondria) and the protein factories. It supplies axons and dendrites with the significant amount of energy and chemicals they need to function and keeps the inside of the cell in the right working order to be able to generate and receive the pulses.

The synapses are responsible for communication, they are chemical junctions between neurons that transmit instructions from axon to dendrites whenever the axon fires an axon potential. The instructions are mainly about transmitting the electric signal, but they also include many others that determine if the synapse strengthens or disappears. The synapses are in a way the “software” of the neuron as they determine the strength and type of communication the dendrites of a neuron receive.

Advantages of neurons over electrical circuits

Contrary to what might be thought, neurons are much better at many processing tasks than the computers that we have built. There are three main advantages, all of which technology companies are trying to copy to make computing more powerful

Self-organization and learning.

The first advantage has to do with the plasticity of neurons and the brain. Brain development is extraordinarily complex but it is based on the less than 1 Gigabyte of information humans have in their DNA. The rest is self-organization based on external information and adaptation during development. For comparison purpose, Windows 98 was the last operating system that would have fit in the human genome, with Windows 10 being already 20x the size and any of the current “intelligent” systems like Watson being many orders of magnitude larger.

The self-organization and learning advantage of the brain makes great sense in the context of evolution. Without any explicit design or ample instruction storage capacity whatever emerged had to be very sparsely designed.

Self-organization and learning are starting to be copied which has led to the boom of artificial intelligence around machine learning and deep learning which uses self-organization and learning principles derived from neurons by creating artificial “neural networks”. These techniques are still in the early days with the most complex networks currently in use being probably in the thousands of neurons compared to the brain’s 100 billion neurons.

Information efficiency.

A second related advantage is the much lower amount of information neurons require to learn. Human and animal brains and neurons are able to learn very quickly compared to machine learning models. A human needs just limited experience with words or driving to perform very accurately, while computers need to “drive” millions of miles or go through billions of words, something which a human would be incapable of doing. The root cause of this advantage is still only speculated about, but it could be around the fact that neurons integrate computing, communication, and information storage together without separating between data, transmission, and computation explicitly.

Information efficiency is also deeply necessary for evolution and highly selected for it. The organism that requires can learn to identify a threat or an opportunity quicker will have a definitive advantage over slower learners.

There is frantic research in getting more information-efficient machine learning models, both in terms of software (e.g. new techniques like deep learning) or hardware (e.g. IBMs neuromorphic chips).

Energy efficiency

Finally, brains also have an incredible advantage in terms of energy efficiency. Our brain functions with approximately 20Wh per day, this is 20% of the total energy budget of a human that is around 100Wh. However, it is extremely energy efficient compared to a computer with comparable power. According to Forbes a smartphone clocks 1kWh per year, or ~2Wh per day, a laptop according to some sources is around 200Wh per day (so 10x more than a human). If we take the laptop as a reference a supercomputer with brain-like processing power would be using millions of times more energy than a human brain.

Energy efficiency is another cardinal design principle of nature. Brains are already very expensive energetically at a biological level, so the brain has optimized itself as much as possible while keeping its processing power.

Energy efficiency for computers is a key design principle, especially for mobile phones and the internet of things. Apparently combining analog and digital processing like the brain does, could be a key to increased energy efficiency in our own digital tools

Long-term electrical advantages

However, electrical digital computers have other advantages over neurons that will probably allow them to dominate long term.

First, electrical circuits currently work in 10s of GHz of clock speed. This is 10 million times faster than what neurons can muster with their 5ms action potentials and 10ms refractory periods. 10 million times difference is equivalent to the difference between evolutionary time scales (i.e. how long does DNA take to evolve new species) and the speed at which we live our lives and improve our economy and technology.

Second, digital storage allows for perfect recall of data. Our brains are not optimized for exact data, which is quite useless in real life. So computers have an advantage in terms of storing, retrieving and processing detailed information, while the brain is quite adept at extracting patterns and getting the gist of an issue.

Finally, digital computers are almost infinitely scalable. Our brains are famously limited by the breadth of the birth canal, with our heads being as big as they can biologically get. Computers, on the other hand, are being stacked in greater and greater numbers through cloud technologies with potentially limitless processing power and storage.

Will Moore’s law take electronics beyond what neurons can do? It is a distinct possibility, and it could bring an upheaval in how the world is organized. Neuron-only organisms are already at a clear disadvantage against digitally-enabled ones. If that enablement is made more direct through brain-machine interfaces we could have a race of super cyborgs like Yuval Noah Harari describes in Homo Deus. If alternatively, we manage to manufacture conscience in electronics, it might decide it has no use for the outdated neuron-based monkeys that brought it here.

In any case, the power of electronics and neurons has to be harnessed towards our values and goals. Ethics, human rights, global development, freedom and the pursuit of happiness have to be front and center in what we do with our neurons and electronics.