The 4th Technological Age

TheCloudby Cato   10/7/14
Former hedge fund manager Andy Kessler has been writing about technology for at least the 20 years I’ve been reading him, and probably longer.  He’s unique among tech pundits in that he’s not a ‘fanboy’; he isn’t google-eyed about tech, to fashion a 2014 pun out of 1930s language.  He is in fact something of a hard sell, making his insights worth consideration.

Kessler’s central tenets in this October 7th WSJ opinion essay (paywall may apply) are:

1) There have been three technological ages: mainframe, PC, internet;

1) The fourth age is mobile; there are now more mobile users than desktop users;

2) Companies are figuring out that they need a mobile and cloud platform;

3) Such overhauls take time and have caused a lull in capital spending in the last five years;

4) This technology transition to a mobile and cloud world will soon be installed and when completed will drag the global economy onto a more vibrant growth path.

This article has the feel, for me, of a watershed.  To get a sense of what this could mean to the economy and our political future it will be helpful to look in the rearview mirror.

Dial back 25 years.  Fortune magazine I think it was, or maybe Forbes.  A Merrill Lynch guru named Robert Farrell … you can read his ten rules here … wrote an article similar to Kessler’s.  In it Farrell wrote of the changing landscape of technology in the late 1980s.  His emphasis was on ‘productivity’.  His investment thesis was ‘sell the armies and buy the arms suppliers’, where the suppliers were new firms whose products deployed the new technology in novel ways and … very importantly … created, for the buyer, increased productivity.

This doesn’t sound revolutionary today but at that moment it was 180° from the prevailing ‘buy the revenue ramp’ valuation model that ruled in the 1980s.  Revenue ramps were measured in absolute dollars, so huge firms growing slowly, generating lots of cash, were kings.  The firms that were selling new, innovative productivity-enhancing products were all small, very profitable but growing rapidly, consuming lots of cash.  LBOs (leveraged buyouts), using massive debt to merge massive companies to create even more massive companies were the headliners of the day.  Then Farrell’s revolution began.

Small firms with products that cost them $1.00 to make, but were worth $3.00 to a buyer because of the productivity increases they created, are margin rather than revenue driven.  Huge margins … 50% minimum, up to 75% in a few like Linear Technology … were a new phenomenon.  Overnight, LBOs became dinosaurs.  We live in that margin-driven world today and have for the last 25 years, and Bob Farrell was the first guy I know of to see it coming.

To me, Kessler’s thesis echoes Farrell’s.  The ‘productivity & margin-driven’ model investors gradually adopted as they embraced Farrell’s insight still works, but like all strategies it needs to be revamped and updated.  I’ve been looking for a new “Farrell moment”, something that rang true on the level not of tactic but of insight.  This article has that smell.  Kessler isn’t trying to be detailed, although I’d love to see him expand it.  This is more pensée than battle plan, given the limits of the op-ed format.

So we can’t say yet what companies will be emblematic of the 4th mobile wave.  It’s a good bet Google is to this next wave what Microsoft was to the last.  I think there is a decent chance Xilinx and ARM and Broadcom will collectively become the Intel of this next wave; SanDisk the next Seagate; Samsung the next Apple (which is fighting hard to transition, with the jury still out); “cloud” firms as a group the next EMC.  But that may be half-blind, as it only includes established firms, and one hallmark of a all new technological ages has been invasive, highly disruptive new competitors.

We can say that all deep, fundamental shifts in the core drivers of commerce and trade and more generally of industry begin with the disruption of the existing order.  Not coincidently the WSJ on October 7th also featured an article reporting how large, diversified companies … Dupont, EMC, GE, 3M, Hewlett-Packard, and many more that aren’t household names … are being shredded, broken up, narrowed and reshaped.  The goal is to make them faster, leaner, more focused; to cull out the embedded bureaucracy and thereby increase market valuations.  Seen from the perspective of Farrell and Kessler this is yet another indication of a tectonic shift in the landscape.  The Titanic class ships are being dismantled.

This is worth pondering.  Worth noting as well, if you live at the intersection of Politics Ave. and Economics Blvd. as I do, is that the last times … in the mid 1990s (internet), and the time before that in the early 1980s (PCs), and the time before that, in the mid 1950s (mainframes) … we experienced this deep shift in the underlying technology strata of the economic world we also experienced a huge shift back to smaller government; back to more conservative principles and practices.

Roosevelt’s liberalism became Eisenhower’s conservatism.  Carter’s bureaucratic state and hyper-regulated economy became Reagan’s reversal of both.  Clinton’s 1992 win became Gingrich’s policies in 1994.  Correlation isn’t causation.  But it seems like that time again.  As huge businesses are been shredded so too, one hopes, will huge government.  I like the smell of that.


Cato blogs at Cato’s Domain.
About Author  Author Archive  Email • (1823 views)

Share
This entry was posted in Economics. Bookmark the permalink.

17 Responses to The 4th Technological Age

  1. Timothy Lane says:

    The problem with mobile devices is that they have small screens and small buttons, which can be problematic for a lot of people. I doubt they will ever be universal (but then, even the Internet isn’t, much less desktop computers). Unfortunately, there will be a lot of people who act as if anyone who isn’t up on the latest developments doesn’t count.

    • Brad Nelson Brad Nelson says:

      there will be a lot of people who act as if anyone who isn’t up on the latest developments doesn’t count.

      There’s been a lot of buzz lately about the supposed gap developing between the rich and poor. Much like the supposed epidemic of sexual assault on college campuses, I take all this stuff with a huge grain of salt until I see statistics and see how those statistics were arrived at. Let’s remember in the case of “sexism,” for instance, that surveys often include an instance of “sexism” if a woman merely reports “being uncomfortable.”

      It is with this skepticism, especially in this climate of Cultural Marxism, that I take reports of the supposed growing gap between rich and poor.

      But from a cultural standpoint, whichever direction technology takes, it’s likely to be more central to our lives, both in the way we practically live and in how we come to think of ourselves. We might laugh at the idea of the bionic man as with the one Lee Majors played. But we don’t need physical parts stuck onto our bodies in order to change how we are. And one look at all the little chipmunks hunched over texting their sweet nothings to each other is a good example of that. You don’t have to physically implant a microchip in order for human beings to begin resembling robots.

      I wouldn’t say that I would be on the forefront of leading a Luddite revolt against technology. But I do think hi-tech stands in a very strong position to trivialize and dehumanize people. You even get a glimpse of this in the wonderful Star Trek universe where Picard/Locutus of Borg, having just battled the Borg successfully in the two-parter The Best of Both Worlds. When he is done being mind-farked by the Borg, he takes his convalescence by returning to his family vineyard in France which is decidedly low-tech.

      I don’t expect there to erupt islands of low- or no-tech in response to what could be the type of electronics ubiquitousness that could drive us loopy. But I do think man will be made shallower, not richer, by his trinkets. We already see that happening now.

      • Timothy Lane says:

        I’m thinking more in terms of individuals who get left behind because they (for whatever reason) aren’t up on the latest and greatest technical whiz-bang. (The fact that this describes me, and Elizabeth even more so, perhaps contributes to my concern. We’ve already encountered this to some extent.)

        • Brad Nelson Brad Nelson says:

          left behind

          I was more “bouncing off” of your point than trying to make it. But you bring up a vital point, and it’s one that I was kinda-sorta addressing: It would behoove us all to be “left behind” and let the fad-conscious pop-robots (Timothy, I need a good contraction of that word…popbots?) play out their expensive role as the “early adopters” of various technologies.

          It’s is only in our own minds that we feel “left behind” because someone else has the latest iPhone or whatever. Do not you see even a little bit how they can be captives of this technology rather than its masters?

          I love electronic books readers and a few other gadgets. But I choose to own them because I find them useful and not because they are a trinket to show off how technologically hip I am. I could truly give a rat’s ass how “hip” I am. And I’m not ever likely going to be “left behind,” especially if you consider that with everyone mindlessly driving over the cliff, being “left behind” has its benefits.

          What we are seeing develop in technology is the perfecting of passive-entertainment devices. Instead of learning to play guitar (a worthy venture) people are pretending to have skills via things such as Guitar Hero. We are becoming a pretend society. We even pretend to have deep and many friends because, in an instant, we cant text a few lines of meaningless nothings to them at light speed.

          Do you sense a theme here, Timothy? Although here at StubbornThings we are using some whiz-bang blogging software, the Old Ideas never really do change all that much. I’ll opt out of the pop brain, thank you. I see where it’s heading and some caution, if not a bit of standoffishness, is called for.

          • Timothy Lane says:

            My concern isn’t so much being left behind in the quest for the latest tech, but being left out by those who assume everyone must be up-to-date.

            • Brad Nelson Brad Nelson says:

              I don’t quite understand your distinction, but look forward to you thousand-word erudite essay on the subject 😀

          • Kung Fu Zu Kung Fu Zu says:

            pop-robots

            Pots! OK, I know it isn’t great, but it kills two birds with one stone. There I go again. I can’t help myself.

            • Brad Nelson Brad Nelson says:

              Pots? I think you’ve got libertarians on your brain. I was thinking more about a name for those yutes who mindlessly follow fads and fashion and then try to pretty-up what are no more than the cultural equivalent of donning bell-bottomed pants with nice-sounding rationalizations and intellectualizing.

              Oh..wait. Maybe you were okay with “Pots” then.

          • Kung Fu Zu Kung Fu Zu says:

            they are a trinket to show off how technologically hip I am

            The old saying, “a fool and his money are soon parted”, still holds true.

  2. Brad Nelson Brad Nelson says:

    I started watching a truly cheesy documentary on Netflix last night about 3d printers. I gave up after five minutes because they weren’t talking about the technology. It was, up to that point, a glorified People Magazine type of glib piece. Total garbage. Another sign of the silly Oprahfication of our culture.

    But there was one thing said while I stayed with it that seemed intriguing. Someone stated that 3d printers would lead to a second industrial revolution. So whatever merits the cloud has, I’d certainly include 3d printers as a possible central (if not definitive) aspect of another tech age.

    • Faba Calculo says:

      I just love the possibility of them for what they could do to gun control for the people.

      Then again, what they could do for gun control for criminals is less heart-warming.

      • Timothy Lane says:

        It will probably be some time before 3D printers can be used to make effective guns. Magazines, on the other hand, are already being made, so any size limit under 30 rounds is probably now a nullity.

        • Brad Nelson Brad Nelson says:

          I’ve got a friend who has looked into fabricating guns. One can apparently get complete 3D plans for a semi-automatic M16. I think the only part you can’t fabricate by plastic (via 3D printer or otherwise) is the barrel.

          I would certainly expect 3D printers to be a huge productivity and cost-saving boon to prototyping and short-run manufactured items. I have no idea if they have these things working on an industrial scale yet. But surely their could be vast uses for these 3D printers in ways perhaps that no one has thought of yet. They certainly have piqued the interest of hobbyists.

        • Faba Calculo says:

          Should never have been anything but!

  3. Brad Nelson Brad Nelson says:

    Exhibit A for how Progressivism makes you stupid: New Reason iPhone 6 is Sexist: Makeup Gets On It if You Rub It On Your Face

    One of the challenges of social commentary (or whatever you want to call it) is to not get sucked into the truly insane world of the Left. To have to daily refute these lunatics is to let them drive the argument. But somehow they must be refuted, and I opt for mocking them as the loons they are and doing so very publicly and then getting on with other things.

    If we don’t mock these kinds of loons, the next revolution in technology will be to socialized technology (after all, then it’s “fair”) and thus to kill innovation.

Leave a Reply

Your email address will not be published. Required fields are marked *