How global unrest will impact innovation in 2023

The global economic and political turmoil of the past year has had a meaningful impact on corporate innovation in the technology industry and beyond.

The worldwide battle with COVID, the Ukraine-Russia conflict and the economic fallout of the COVID lockdowns and supply chain disruptions have together created a painful combination of a global recession, global inflation and unpredictable instability in the worldwide economy.

All of these factors have led to belt-tightening in the corporate world, layoffs and hiring freezes and a more conservative investment posture from the investment community. Inevitably, these changes will have a chilling effect on innovation in the years to come.

However, there is perhaps a silver lining when it comes to the prospects for innovation. In some ways, these market forces might actually serve as an accelerant for creativity and advancement in technology.

In this climate, it might be easier to buy and integrate instead of trying to build from scratch.

Short-term impacts

In the short term, the impact of these negative economic trends and the political instability will be felt by the centers of innovation in both the corporate and startup worlds.

Corporations are likely to slash spending on internal and external innovation. That is, they will reduce their research and development budgets and likely focus R&D on projects that can have immediate impacts on profitability at the expense of long-term visionary projects.

Corporations will also spend less on collaborations with other innovators and expensive acquisitions of advanced technology. We expect to see more acquisitions of early-stage companies as they become weaker and corporations look to develop new technologies more cheaply by buying at a discount rather than building from scratch.

How global unrest will impact innovation in 2023 by Ram Iyer originally published on TechCrunch

The innovation supply chain: How ideas traverse continents and transform economies

While Westerners often associate the invention of calculus with 17th century European luminaries like Isaac Newton and Gottfried Leibniz, its theoretical foundations actually stretch back millennia. Fundamental theorems appear in ancient Egyptian work from 1820 BC, and later influences sprout from Babylonian, Ancient Greek, Chinese and Middle Eastern texts.

Such is the nature of the world’s biggest ideas — concepts that arise in one corner of the world provide the scaffolding for future advancements. Realizing the true potential of any idea takes time and requires input from diverse cultures and perspectives.

Technological innovation is no exception.

In the tech world today, this is playing out in three important ways:

  • ideas improve when they become global;
  • the best ideas are increasingly starting internationally; and
  • testing globally is a differentiated strategy.

Ideas improve as they scale globally

Like calculus, technological innovation benefits from international iteration.

Ridesharing, for instance, started as an innovation pioneered by Uber and Lyft in San Francisco. Yet startups rapidly exported the model globally. Such evolution reflects local needs. Take Go-Jek, a ridesharing app that is now a dominant local player in Indonesia. Although Go-Jek “replicated” the model, they also took a highly localized approach, applying the Uber/Lyft concept to Jakarta’s existing informal system of motorcycle taxis, “ojeks.”

Yet Go-Jek realized that ojek drivers had the potential to do so much more than just move people around. The company aims to maximize driver engagement throughout the day and has built a multi-service app that allows them to not only transport people, but also deliver food, packages and services. As Nadiem Makarim, Go-Jek’s CEO put it, “In the mornings, we drive people from home to work. At lunch, we deliver them meals to the office. In the late afternoon, we drive people back home. In the evenings, we deliver ingredients and meals. And in-between all this, we deliver e-commerce, financial products and other services.”

Silicon Valley used to have a monopoly on the idea, manufacturing and distribution of innovation. No longer.

The model of leveraging a single ridesharing platform to deliver a range of services is undoubtedly different from the Silicon Valley original. In Silicon Valley, an array of companies offering Uber for X have sprung up, yet some of Uber’s latest product categories — like UberEats — seem more akin to the Southeast Asian model.

Tellingly, Go-Jek’s vision incorporates inspiration from another geography: China. In China, platforms like Tencent’s WeChat offer a range of direct and third-party services spanning ride-hailing, shopping, food delivery and, of course, payments. WeChat payment functionality (like Ant’s equivalent) is nearly ubiquitous in major Chinese cities.

Go-Jek, like its competitor Grab, has evolved its model to include a payments platform as part of the app. It is striking to see Uber enter financial services, as well — take, for example, the recent Uber credit card.

These models evolve by learning and combining lessons from other geographies.

The seeds are increasingly global

Historically, entrepreneurs outside Silicon Valley were accused of being replicators — copying and adapting successful models pioneered in San Francisco or Palo Alto.

Times are changing.

Many of the most compelling tech innovations increasingly come from outside of Silicon Valley, and even the United States. Just look at some of 2018’s most successful IPOs — Sweden’s Spotify, Brazil’s Stone and China’s PinDuoDuo (a Cathay Innovation portfolio company).

Entrepreneurs are working to replicate innovations from every corner of the globe. Take mobile payments.  M-Pesa, Kenya’s ubiquitous payments platform that now transacts a remarkable 50 percent of its country’s GDP, has created a global movement. Today, there are more than 275 deployments around the world.

Certain geographies are specializing. Toronto and Montreal are emerging as artificial intelligence hubs. London and Singapore remain leading fintech hubs. Israel is known for its cybersecurity and analytics expertise. And regionally focused initiatives are catalyzing this further. For instance, Rise of the Rest is committed to supporting entrepreneurs across the U.S., and organizations like Endeavor facilitate the development of entrepreneurial hubs worldwide.

The nascent innovation supply chain will see increasing globalization of the generation of new ideas.

Emerging ecosystems can provide optimal testing grounds

Broadway is famous for testing its shows in smaller markets before committing them to the big stage. Similarly, innovators are looking to emerging markets to test models before scaling them.

SkyAlert, which operates an earthquake early warning system, is an illustrative example. In most earthquakes, people do not die from the shakes but rather from getting trapped or crushed under collapsing buildings. Technologically, it is possible to perceive and distribute an early warning, as a quake is first felt near the epicenter and travels outward from there. Through its network of distributed sensors, SkyAlert promises its users a head start to evacuate buildings, and can work with companies to automate security protocols (e.g. gas shutoff).

SkyAlert was not born in San Francisco. Alejandro Cantu, SkyAlert’s founder, began in Mexico City, which he describes as his innovation laboratory. The early versions were focused on R&D rather than commercialization. Developing this in Mexico City was much more affordable for product innovation. Salaries were cheaper. Cost of acquisition was cheaper. The U.S. is now his main target market, but Mexico served as his early base of operations and testing ground.

As a community of innovators, we have an opportunity to take advantage of these trends.

Just as most Silicon Valley techies are familiar with the buzz around Amazon’s home drone deliveries, the majority remain unaware that some of the most interesting drone innovation is happening far away in emerging markets. In developing nations, where infrastructure is far more limited, drones offer lifesaving potential. Startups like Zipline leverage drones to leapfrog broken or nonexistent infrastructure. They deliver time-sensitive drugs and blood across Rwanda through a partnership with the ministry of health. Already, its drones have covered 600,000 km and delivered nearly 14,000 units of blood (one-third of which were in emergency situations).

Entrepreneurs are testing these innovations in markets that are more affordable, and where the need is most acute. Over time, such models will scale and return to developed markets. This is how the innovation supply chain will evolve. 

Where we go from here

The Economist recently predicted a “Techodus” — that innovation will continue to shift away from Silicon Valley. The story is more nuanced.

Silicon Valley used to have a monopoly on the idea, manufacturing and distribution of innovation. No longer. The creative spark is coming from everywhere, innovators are testing ideas in markets where costs are lower and needs are more acute and models are perfected from lessons from around the world.

As a community of innovators, we have an opportunity to take advantage of these trends. You have a new product idea that could be completely transformative? Great. Who else is doing that globally? You want to test a new idea? What are the advantages and disadvantages of various locations? How can the innovations’ lessons from abroad be replicated locally?

Technology innovation on the second half of the chessboard

EarthNow recently announced a $1 billion investment, perhaps the largest-ever Series A financing round, to build a global constellation of satellites. Ant Financial announced plans to raise $9 billion at an expected $150 billion valuation, making it the most highly valued privately held company. Last year, SoftBank embarked on a $100 billion investment fund, 30 times larger than any prior venture fund.

The venture industry is scrambling to respond. Several established funds, including Sequoia, Khosla, Norwest and Battery, have recently announced by far their largest funds raised to date. Valuations and round sizes have doubled on average in the past five years.

The speed and magnitude with which technology innovation is moving is mind-boggling, even for those of us who have worked at the center of it for decades. Staid industries for which technology seemed irrelevant are transforming themselves or being disrupted by the Connected World, innovation made possible by the confluence of cloud, mobile, sensor and artificial intelligent technologies. McKinsey has noted that the internet-impacted industries represent 15 percent of our economy. The Internet of Things will impact the rest with a potential economic impact of $11 trillion by 2025.

Technology innovation is now a global village. China has moved from a technology laggard to fast follower to leader within the span of two decades. This year, venture investment in China is likely to surpass U.S. venture investment for the first time. Europe is producing cutting edge technology and companies; the Spotify IPO ago is just the latest example. Venture investors in Silicon Valley used to apply the bridge rule: If an investment involved crossing a bridge, then it was out of scope. Now many of us apply the two-flight rule: Any investment is fair game if it can be reached within two flights.

And yet we are left to ponder: Has the market run amok? Otherwise, what fundamentals are driving the longest bull run in venture history? Brynjolfsson and McAfee from MIT offer some perspective in “The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies.”

First, they note that innovation is accelerating as we approach the “second half of the chessboard.” This analogy applies a parable to Moore’s Law. The game of chess originated during the sixth century in present day India during the Gupta Empire. As the story goes, the emperor was so impressed by the difficult, beautiful game that he invited the inventor to name his reward. The inventor said, “All I desire is some rice to feed my family,” and proposed to start with one grain of rice on the first square and double the grains of rice in each succeeding square.

Impressed with the inventor’s apparent modesty, the emperor replied, “make it so.” If the request were fully honored, the inventor would receive 1.8 x 10^19 grains of rice by the 64th square, more rice than has been produced in the history of the world. The midpoint of the board would receive 4 billion grains of rice, about one large field’s worth of rice. It was only as they headed into the second half of the chessboard that at least one of them got into trouble.

The range of possible innovations for aspiring entrepreneurs are broader than they have ever been.

Geoffrey Moore first proposed what has become Moore’s Law — the doubling of compute power every two years — in 1965. Moore initially indicated that he could foresee this pattern persisting at least 10 years.  Moore’s “Law” is merely a guideline, yet it has proven to be reliable over the past 50 years, and experts indicate it is likely to persist for another 10-15 years. If applied from the invention of semiconductors in 1958, then we are currently on the 30th square — rapidly approach the second half of the chessboard.

Until recently, the implications of Moore’s Law have been predictable. I first extrapolated Moore’s Law out 10-15 years starting in the 1990s. One could readily envision the miniaturization of computers, the rise of smart phones and Dick Tracy watches, the proliferation of sensors, higher processing speeds, storage capacity, compute power that would permit robotics, augmented intelligence and edge network computing. As we project forward, implanted devices, self-healing operations and autonomous vehicles seem imminent.

But as compute power far exceeds human capacity, it is increasingly difficult to apprehend the future implications of Moore’s Law. Much as with the emperor and inventor, the acceleration of innovations and magnitude of change puts us in promising but murkier territory as we enter the second half of the chessboard.

The second concept that Brynjolfsson and McAfee highlight is the delayed impact of fundamental innovation adoption. Pervasive utilization of the steam engine, internal combustion engine, electricity and indoor plumbing took decades, often 30-60 years. These innovations were often not adopted until new manufacturing facilities were built decades later.

We observe a similar trend in adoption of computer and internet technology. The publishing industry for books and newspapers was the most obvious application of the internet, yet it took well over a decade for our reading habits and the industry to adjust. Many would say this is still a work in progress. The financial industry is fundamentally a digital business, yet many practices remain entrenched: cash and credit card-based payments are but one example. The auto sector is just beginning to grapple with myriad new technologies. Surely the manufacturing and industrial sector will take longer still.

So two innovation trends are coinciding. Increases in compute power empower artificial intelligence, smart sensors and edge computing for the first time. Meanwhile, many industries are grappling to adopt technology available in the market for decades. The range of possible innovations for aspiring entrepreneurs are broader than they have ever been. The potential to transform industries has never been greater. More capital than ever before is available for good ideas. It is a great time to be an entrepreneur.