Source: The Economist
Subject: A new way to work
Two experts from MIT analyse the business implications of our digital future
IN 2014 Andrew McAfee and Erik Brynjolfsson of the Massachusetts Institute of Technology published “The Second Machine Age”. The book was a balanced portrait of how new digital technologies were poised to improve society, even as they increased unemployment and depressed wages. In their latest work, “Machine, Platform, Crowd”, the authors seek to explain the business implications behind these developments.
Mr McAfee and Mr Brynjolfsson believe that the latest phase of computers and the internet have created three shifts in how work happens. The first is artificial intelligence (AI): a move from man to machine. In the past people worked with computers and, at the same time, were augmented by them: what the authors call the “standard partnership”. But that model is breaking down as computers improve and take more control.
You need only look at self-driving cars, online language translation and Amazon’s prototype cashierless shops to see that something big is happening. Digital technologies used to be applied to information—first numbers and text, and, later, music and video. Now, the digital technologies are invading the physical world.
For instance, designing a “heat exchanger”, a part in appliances like refrigerators, means balancing many different specifications and constraints. Humans settle for one that works well enough because to find the optimal one is too hard. But new “generative design” means AI-infused software can run zillions of tiny permutations to find the best possible design—one that a human might not come up with. And with 3D printing, those designs might be shared, modified and manufactured anywhere.
The second is a shift from products to platforms. Many people encounter evidence of this every day. The largest cab service owns no vehicles (Uber), the biggest hotelier has no property (Airbnb), the most comprehensive retailer holds no inventory (Alibaba) and the most valuable “media” company creates some content but not much (Facebook). There are more than 2.2m apps in Apple’s store, almost none of which the company developed itself.
Platforms are a way for companies to create marketplaces that allow both sides of the transaction to flourish—while the firm, as gatekeeper, enjoys a tidy revenue stream. This is hard to pull off. The platform must ensure that standards are high, and also attract different sets of participants (like drivers or app developers on one side and customers on the other). But platforms are very valuable when they work, since they scale beautifully in a digital setting. The meatiest part of the book is the treatment of platform economics, replete with demand-curve charts.
The third shift is from the core to the crowd. The core refers to centralised institutions, like central banks or the “Encyclopedia Britannica”; the crowd refers to the decentralised, self-organising participants, be it bitcoin nodes that manage the virtual currency or contributors to Wikipedia.
When transaction costs are high, companies do things internally, as Ronald Coase, an economist, once noted. Yet as digital technologies lower the cost of interacting, more things can be done by informal groups. This leads to greater experimentation and innovation. “The core is often mismatched for the kinds of challenges and opportunities it faces, while the crowd, because it’s so big, almost never is,” the authors write.
Pedants will quibble that the book is built on individual themes that others have looked at more deeply. Some readers will be aghast that chapters end with bullet-point summaries and questions, evoking the worst of unctuous business tomes. But tolerate this. For an astute romp through important digital trends, “Machine, Platform, Crowd” is hard to beat.