Jim Harris

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The Future of Augmented Reality

By Jim Harris 

By 2025, the global market for augmented reality (AR) will be $300 billion with 1.2 billion users, but not in the way you think. 

What is Augmented Reality (AR)?  

Ikea has an AR application that lets you see what a room would look like with an Ikea couch in it. The reality (a photo of your home) is augmented with an image of an Ikea couch. This is a great example of how AR can be used in retail. 

One of the most basic mobile AR apps are the Instagram filters people overlay on selfies. The ultimate AR app of course is Pokémon Go. It was released in 2016 and was downloaded more than 500 million times globally by the end of its first year! That grew to 1.1 billion downloads in 2020. Critical insights from Pokémon are:

Specialized Equipment vs. Smartphones: Millions vs. Billions

If AR requires special equipment like an Oculus headset (pictured), the market will be limited because 1) people don’t carry a specialized headset around with them at all times, but they do carry their smartphones; 2) It’s predicted that by 2025 53 million AR headsets will be sold a year. By comparison that more than a 1.5 billion smartphones will be sold in 2025, according to IDC; 3) the average selling price (ASP) of a consumer AR headset is currently $800 and it is predicted to fall to $500 by 2025. Unless you’re a serious gamer, or have a specialized corporate use case, smartphone apps will dominate AR. 

 

Bringing Museums to Life  

Dali Lives is a way for visitors to interact with Salvador Dali at the Dali Museum in St Petersburg, Florida. The system uses artificial intelligence (AI) to answer questions that museum goers might ask. Everything that Dali ever wrote, all his interviews were analyzed by the AI. It determines the most likely answer Dali would have given to any question he might have been asked. Dali’s image was extracted from photographs and video and his voice, accent and intonation all come from audios of the artist. 

“Dali Lives” is a large stand alone display with speakers (left). Now imagine that rather than this display answering questions, using 5G and GPS you could listen to the AI on your earbuds via your smartphone as you walk around the museum. Dali would be serving as your personal tour guide telling you about the exhibits, but also answering your questions about any piece of art that you were curious about – using the vast reservoir of the world’s knowledge about Dali. 

How engaging would a museum be for children learning about art history? Literally art would come to life! Think about all the applications for museums, historical sites, tourism and education in general. 

Now here’s a specialized application that uses a AR headset: 

AR in the OR: Transforming Surgical Visualization 

Dr Christopher Monely, the co-founder of MediVis, spoke at CES in 2017 during the Verizon keynote. MediVis uses augmented reality and 5G to take big data and using 3D modeling and AI, dramatically improve surgical outcomes. Many surgeries today are performed the same way they were 30 years ago: blindly. 

Among the most frequently performed neuro surgical procedures is the freehand ventriculostomy. The surgeon drills into the patient’s skull, determining the angle by eyeballing it. There’s no consideration for the immense variation between individual patients. Unsurprisingly 40% of procedures go wrong and 20% of patients have serious complications. This procedure requires that the angle, width of hole, and drilling depth are ALL EXACTLY right. 

All patients have a detailed digital map of their brain from CT and MRI scans. This data has been historically trapped on 2D monitors. Patient data can now be transformed into actionable intelligence. Using AR, 5G and cloud computing, the data can be modeled in 3D so that the surgeon wearing AR goggles can see all the blood vessel and brain landmarks perfectly perform the procedure. The technology allows surgeons to radically rethink the procedures making it safer and simpler. 

By 2025, AR combined with 5G, AI, cloud computing and mobile will allow for an infinite array of new applications and business models to deliver more real-world value in retail, eCommerce, education, tourism and health to billions of people. 

Jim Harris is the author of the Blindsided which focuses on disruptive innovation. It is published in 80 countries worldwide and is a #1 international bestseller. You can follow him on Twitter @JimHarris or email him at jim@jimharris.com

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Inexpensive solar disrupts traditional power producers

By Jim Harris

Solar power is the cheapest source of new electricity globally. In April 2021, the world record low bid of 1.04 cent per kWh of solar power was announced for 600MW of solar power in Saudi Arabia — that is enough energy to power 100,000 homes. Power Purchase Agreements (PPA) are for 20 or more years and include both capital and operating costs.

This is bad news for traditional power producers globally. It costs more than a cent to run an existing gas, coal or nuclear power plant. In other words, the combined capital (CAPEX) and operating (OPEX) expense of some solar is now cheaper than the operating expenses of traditional power plants. According to the International Energy Agency (IEA), the cost to operate nuclear power plants are two to five cents per kWh; for coal it is two to four cents; and for natural gas it is between four and ten cents.

Solar and wind power are the cheapest source of electricity for two thirds of the world’s population, according to Bloomberg New Energy Finance (BNEF). The economies in these countries represent 72% of the world’s GDP and 85% of global power demand.

Looking back, the price of solar power has plummeted from $77 per Watt in 1977 to just 12¢/Watt in 2020. This stunning decline of 640X is head spinning. Solar power has been declining in cost 18% annually since 2010.

Most traditional electricity utilities have been slow to embrace solar. In 2000, the IEA predicted that the world would have installed a total of 18 Gigawatts (GW) of solar capacity by 2020. The IEA is the body that advises world governments and electric utilities on future trends. By the end of 2020, the world had installed just shy of 900 GW of solar power. The decline in solar prices has driven cumulative solar installations surpassing what the IEA predicted.

Wright’s Law

Wright’s Law states that for every cumulative doubling of units produced, costs will fall by a constant percentage. Think of it as the law of learning, or the experience curve. For solar power it works out to a 30% decline in cost for each doubling of cumulative production. As solar installations continue to be built, costs will decline, resulting in even more solar installations.

Here is a staggering statistic: more energy falls on the earth from the sun in a single hour than all energy used in all countries in an entire year.

According to a new report released by Carbon Tracker in April of 2021, by the mid 2030s, solar and wind power will have pushed fossil fuels (coal, oil, and gas) completely out of the electricity sector. Given the rapid rise in electrification of the $10 trillion transportation market, fossil fuels will be pushed out of transportation as well.

It appears the decade of disruption for electric utilities will be between 2020 to 2030.

Jim Harris is the author of Blindsided. Follow him at @JimHarris or email: jim@jimharris.com

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How Zoom Beat Huge, Established Videoconferencing Players

By Jim Harris

In December of 2019, Zoom had 10 million daily users. From April to June 2020, the app was downloaded 300 million times – 200 million times from Google Play and 94 million times on Apple’s App Store, shattering records for the most downloaded non-game app in history. How many companies do you know that increased their customer count by 30X during the pandemic? And look at Zoom’s revenue growth:

Zoom’s Quarterly Revenue

Zoom had the highest growth in brand recognition among American consumers in 2020, according to Morning Consult’s annual study. And Zoom is worth as much as the top seven airlines (by 2019 revenue) COMBINED in March 2021.

How could videoconferencing upstart Zoom crush well established players like Skype (owned by Microsoft) and Cisco’s Webex?

I was in Nepal in 1998 and needed to call back to North America. By telephone, it cost 300 Nepalese Rupees per minute (about $2.50 US). Instead I went to an Internet café, put on a headset and called for just 10 Rupees a minute (8.5 cents). While at the time the Voice Over Internet Protocol (VoIP) technology wasn’t duplexed, I nonetheless predicted that all long distance would be free by 2005 for North American consumers. Skype beat my prediction by 2 years launching in 2003.

In the graph below, VoIP calls (in red) don’t even register until 2005. International long distance for telcos (navy blue) peaked in 2014 and then began to decline. By contrast, VoIP continued exploding. International VoIP calls are now more than 1,200 billion minutes – or 1.2 trillion minutes a year. Important insight: disruption can be a decade or two in the making until the technology matures enough to overwhelm traditional incumbent companies. Think about this: in 1998 US telcos used to make 70% of their profit from long distance calls.

Now here’s the killer stat: Zoom is now providing 3.5 TRILLION minutes of videoconferencing a year (baby blue bar). That’s more than ALL international minutes from all traditional telcos added to all international VoIP minutes — then doubled! And Zoom is doing that all by itself. The VoIP disruption prepared the stage for Zoom’s disruption. (Note: navy blue and red are only international long distance. Zoom’s is domestic and international long distance and local)

Source: TeleGeography, final bar’s data from Zoom

Freemium. Zoom allows users to experience the system with its freemium model. A free account allows a user to host meetings of up to 40 minutes for up to 100 people. That allows individuals working in companies that are locked into existing contracts with WebEx or Skype for Business, to still try Zoom. Zoom founder Eric Yuan said: “Without a freemium product, you’re going to lose the opportunity to let many users test your products.”

Price. In 2008 I was at a Cisco Telepresence demo. The system provided an immersive video conferencing experience – at a cost of $70,000 per location. Fast forward to 2020 when a Zoom Pro account is $20 a month and uses existing hardware (laptop, desktop, or smartphone). Cutting the cost of video communication to almost to zero results in exploding demand. But that’s still not the full story.

Quality. Zoom has worked diligently to have the best possible video and audio experience across a wide array of devices. The system has been designed to be feature rich and customer-centric.

Ease of Use. Zoom has focused on creating a frictionless experience compared to other platforms. You access a meeting with a simple link. No one wants to have to download an .exe file or an app, or to be forced to register for an account. No one wants to be 10 minutes late for a meeting because they were fighting to make the thing work.

Scalability. Zoom was designed from the ground up to scale. It’s built on AWS for the very purpose of being able to serve explosive demand.

Implications
Zoom’s success will accelerate the decline of landlines. The average cost of a home landline in the US is $45 per month. Why would you pay that when can call anywhere in the world via Zoom for $20 a month and have no long distance charges?

What does become more important is bandwidth. If you’re at home in the pandemic with kids who are at school on Zoom, and you have business meetings, bandwidth is key. We’re going to see an increase in bandwidth demands and expectations – connected Ethernet, WiFi and mobile. This, of course, will fuel consumer desire for Gigabit Ethernet, WiFi 6 and 5G. Welcome to the Zoom revolution.

Jim Harris is the author of the Blindsided which focuses on disruptive innovation. It is published in 80 countries worldwide and is a #1 international bestseller. You can follow him on Twitter @JimHarris or email him at jim@jimharris.com

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By Jim Harris

The Augmented Reality market has evolved. By 2025, the AR global market will be $300 billion with 1.2 billion users.

I attended Huawei’s Better World Summit for 5G + AR online on Jun 17, 2021. The company introduced the Huawei AR Engine, a development platform for mobile devices, and released a white paper AR Insight and Application by Strategy Analytics which you can download here. AR has huge potential in application in retail and eCommerce, tourism, health care and education. To drive AR’s adoption and predicted explosive growth, Huawei called for greater collaboration among industry players.

The explosion of AR will be driven by developer tools becoming simpler and more powerful. For instance, Huawei’s Air Photo uses unique algorithms to convert a 2D photo into a digital 3D model, significantly simplifying AR 3D character modeling. And Huawei’s AR Engine allows developers to write 10 lines of code to create mobile AR effects during app development.

What is Augmented Reality (AR)?
Ikea has an AR application that lets you see what a room would look like with an Ikea couch in it. The reality (a photo of your home) is augmented with an image of an Ikea couch. This is a great example of how AR can be used in retail.

One of the most basic mobile AR apps are the Instagram filters people overlay on pictures that they take of themselves.

Cosmetic App
During the COVID pandemic, women don’t want to try on makeup samples. A number of cosmetic companies have released AR apps that let you see what you’d look like with different colours of lipstick. Here’s L’Oreal’s app:

Image: https://venturebeat.com/2019/06/04/amazon-and-loreal-let-you-digitally-try-on-makeup/

The ultimate AR app of course is Pokémon Go. It was released in 2016 and was downloaded more than 500 million times globally by the end of its first year!

Using the mobile phone’s GPS the user can locate, train and battle virtual creatures called Pokémon which appear in real world locations on the player’s mobile device. Pokémon Go has been downloaded 1.1 billion times generating $1.23 billion of revenue in 2020. There are four critical insights from Pokémon:

1) Specialized Equipment vs. Smartphones. If Augmented Reality requires special equipment like an Oculus headset (see below), the market will be limited for a couple of reasons. First, people don’t carry a specialized headset around with them at all times, but they do carry their smartphone and secondly, when they wear one of these they may find that they get disoriented and dizzy as I do.

But if AR is driven by smartphone use, then adoption is significantly increased, because there are more than six billion smartphone users globally.

Here is a staggering statistic: in 2018 smartphones represented 59% of all consumer electronics spending globally.

2) Scaling: Adoption Rate. Adoption of a new technology is driven by the use case. Below is one of my favourite statistics: How long it took different technologies to reach 50 million users. While it took the airline industry 68 years to reach 50 million customers it too Pokémon Go just 19 days. Back to point #1 when an application makes use our smartphones it will scale far, far faster and have broader application than one that uses specialized headset and hardware.

3) Smartphones Eating All Consumer Electronics
Years ago, did you buy a GPS for your car? It might have been a Garmin, Tom Tom or Magellan. You likely paid $750 for it plus a monthly subscription for keeping it updated. But who uses one of these devices now?

Today my smartphone with GPS and Waze gives me everything I need and its FREE. What enabled this shift was 1) GPS being embedded in my smartphone; 2) the release of Waze which has more than 140 million monthly users globally who drive more than 24 billion miles (40 billion kilometers) every month.

To me, this highlights how the smartphone is continually sucking more value into it.

Peter Diamandis looked at the modern smartphone and went back to 1980 to calculate the value of all the consumer electronic (CE) functionality it now includes. To buy all the CE devices that offer the same functionality and value that a smartphone does today would have cost $1 million in 1980. (I feel a bit like Doctor Evil saying this).

4) Compounding Multiple Trends: A number of technologies are exponentially improving in price performance. When these are stacked, the results are even more shocking.

The classic exponential law most people know is Moore’s Law: the number of transistors on a CPU (central processing unit) will double every 18 months while remaining at the same price point. Over time the result is staggering. In 1970, an Intel CPU had 2,000 transistors, in 2021 chips have 50 billion transistors.

That in turn means the price of computing has plummeted. A gigaflop is a measure of compute speed – performing a billion transactions in a single second. In 1961, a gigaflop cost $164 billion to execute on mainframe computers. In 2021, sixty years later, a gigaflop is a single cent.

Not only is computing faster and cheaper, devices are smaller, lighter, less energy intensive, and most importantly allow for all sorts of new applications. It is also at the edge (meaning on my smartphone as opposed to in a data centre).

With faster speeds and cheaper computing all sorts of new applications become possible. For instance, voice recognition is one of them. Think of Alexa, Siri, or Nuance’s Dragon Naturally Speaking.

In 1997 IBM’s Deep Blue beat Garry Kasporov the World Chess Champion in chess. That was a $100 million dollar project. Today my Huawei Mate Pro 20 smartphone has more raw computing power than Deep Blue!

This same head spinning price performance increases are happening with the roll out of 5G and bandwidth, artificial intelligence (AI), and cloud computing.

All of these trends are compounding one another allowing entirely new products and services, business models and ways that companies can add radical new value for customers.

We Don’t Have Health Care We Have Sickness Care
We don’t have health care we have a sickness care. I wait until I get sick then go to the doctor. This approach catches many serious problems when it’s too late. Instead of detecting cancer at stage 4 what about catching it at stage 0?

Before a plane takes off the pilots test every single critical system. Imagine I did the same every morning when I woke up. With wearables and the miniaturization of technology we can monitor and predict the emergence of disease.

For instance, it’s recommended that you have a colonoscopy every 5 years. For many people that would be far more frequent than their current practice. Instead, imagine taking a little pill that has a camera on either end, batteries in the center and a radio transmitter. You’d swallow the pill and which would take thousands of photos from launch to splash down 72 hours later. Those photos would be transmitted by radio to a receiver you’d wear on your waist.

If cells in your intestine and colon are precancerous they emit a different colour of bile than normal, health cells. The thousands of photos can then be analyzed by AI to detect cancer before it’s progressed to stage 1. Which would you rather do: swallow a pill or have a colonoscopy?

Telehealth
Before the pandemic, if I wasn’t feeling well, it took me on average three weeks to get an appointment with my doctor. On the appointed day I had to take a half day off work, drive to her office, find a parking spot and pay for three hours of parking because I never knew how long I would be. I’d have to go sit in a waiting room with other people who were coughing and sneezing and had rashes.

Finally, I would get to see my doctor for five to ten minutes and then perhaps have to do a test in a lab next to her office. Then I would be sitting in a different waiting room with different people sneezing and coughing.
Finally, I might have to go the pharmacy and get a prescription filled out.

But with the COVID pandemic more than 50% of medical visits in China were by telemedicine. In the United States digital health surged from 11% of patients in 2019 to 46% in 2020.

In 2020, I had a pain in my stomach and using Telus Health MyCare, a partnership with UK based Babylon Health, I was able to secure a same day appointment for 15 minutes with a medical doctor and diagnose my problem.

AR in the OR: Transforming Surgical Visualization
Dr Christopher Monely, is the co-founder of MediVis which uses augmented reality and 5G to take big data and using 3D modeling and AI dramatically improve surgical outcomes. Many surgeries today are performed the same way they were 30 years ago: blindly.

Among the most frequently performed neuro surgical procedures is the freehand ventriculostomy. The way it’s done traditionally is for the surgeon to drill into the patient’s skull, determining the angle by eyeballing it. There’s no consideration for the immense variation between individual patients. Unsurprisingly 40% of procedures go wrong and 20% of patients have serious complications. This procedure requires that the angle, width of hole, and drilling depth are ALL EXACTLY right. Eyeballing it, highlights how inexact this historical procedure has been.

All patients have a detailed digital map of their brain from CT and/or MRI scans. These data have been historically trapped on 2D monitors. But patient data can now be transformed into actionable intelligence. Using augmented reality, 5G and cloud computing the data can be modeled in 3D so that the surgeon wearing AR googles can determine EXACTTLY where to drill in the patient’s skull, at what angle and what depth and what width of hole BEFORE the procedure begins. The surgeon can see all the blood vessel and landmarks of the brain. The technology allows surgeons to radically rethink how they work making procedures safer and simpler.

The technology enables remote medical procedures to take place and has significant implications for how medical schools train future doctors. Harnessing mixed reality to transform surgical visualization

Bringing Museums To Life
Dali Lives is a way for visitors to interact with Salvador Dali at the Dali Museum in St Petersburg, Florida.

The system uses artificial intelligence (AI) to answer questions that museum goers might ask. Everything that Dali ever wrote, all his interviews and photographs of him were the input for the AI read, which determines the most likely answer Dali would have given to any question he was asked.

Dali’s image was extracted from photographs and video of him. And his voice, accent and intonation all come from audios of the artist.

Dali Lives is a large stand alone display with speakers (left)

Now imagine that rather than a stand alone display answering questions, using 5G and GPS you could listen to the AI on your smartphone as you walk around the museum – listening on your earbuds. Dali would be serving as your personal tour guide telling you about the exhibits, but also answering your unique questions about any piece of art that you were curious about – with a vast reservoir of the world’s knowledge about Dali tailored to your every question.

How interesting is that? How engaging would a museum be for children learning about art history? Literally art would come to life! Now think about all the applications for any museum, historical site and tourism in general.

Education
Hearst, a leading global media and information company launched virtual models for its magazine SuperELLE – bringing static 2D pages to life. Hearst used Huawei’s AR engine:

Gaming
The world’s 2.6 billion gamers spent $159 billion in 2020 – roughly half of the revenues from mobile gaming. The market is predicted to grow to $200 billion in 2023 and more than $400 billion in 2026.

While the average price of an AR headset was $800 in 2020 it’s predicted to fall to less than $500 by 2026. This is why, in my opinion, mobile will dominate AR. Almost everyone already has the hardware in the form of their smartphone.

The average selling price of a smartphone in North America was $471 in Q2 of 2020, while in China it was $310 according to Counterpoint. Smartphones will stunt the growth the specialized AR headset sales. It will be hard core gamers and specific and custom business use cases that will drive AR headset sales.

Mechanics
Think about a new mechanic working on your car. They could wear AR googles and have a training program take them through step by step what procedure to follow. This use case uses the same principles as the neurosurgical case above. Any trades person could learn in real time what to do in a situation they were not certain about.

AR combined with 5G, AI, cloud computing allows for an infinite array of new applications and business models to deliver more real-world value to people. We are living in exciting times.

Jim Harris is the author of the Blindsided which focuses on disruptive innovation. It is published in 80 countries worldwide and is a #1 international bestseller. You can follow him on Twitter @JimHarris or email him at jim@jimharris.com

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Plug and Play Options for Zooming Like a Pro

By Jim Harris

In December 2019, Zoom had 10 million daily users. In the second quarter (April, May and June) of 2020, Zoom’s app was downloaded 300 million times: 94 million from Apple’s App Store (shattering the previous record of 50 million downloads for a non- gaming application) and more than 200 million times from Google Play.

During the pandemic, Zoom has become the go-to video conferencing service – downloaded at six times the rate of any other competitor:

Source: Apptopia and Bloomberg

According to Gartner 54% of leaders say that poor technology and/or infrastructure for remote working is the biggest barrier to effective remote working in their organization.

Given how much people are zooming from home for work, how can you easily create professional setup?

Companies like Google, Spotify and Twitter are giving employees a $1,000 budget to get an ergonomic chair and all the technology required to have a professional work from home setup up. As no one from the IT department can drop by to help you, what peripherals are easy to set up, high quality and easy to use?

Web Cam
The Logitech Brio 4K is amazing. Every Zoom call I’ve been on in the pandemic I’ve had the highest resolution video of anyone. The images are so crisp that you can read the titles of the books in the bookshelf behind me.

This USB cam is easy to set up. Most importantly the camera automatically adjusts given the lighting. This is critical.

In the three months following the global lock down, Logitech sold as many peripherals as in all of 2019. The company has been ramping up production. If the Brio 4K is back ordered, it’s worth the wait.

Pro tip: plug you web cam directly into a USB 3.0 port rather than a USB splitter. Some web cameras need the fastest connection possible.

Microphone
I’ve been using a Blue Yeti USB microphone for years, and I love it.

I’ve been testing Rode’s new NT-USB mini and it’s great. You can get it with a stand or an arm – with the arm you can look like a radio show host with a mike in front of your mouth. You can also plug your earphones into the back of the microphone via a mini jack.

Some microphones have an XLR plug and require a separate sound mixing board. Unless you’re a musician, audiophile or a radio show host, stick with a USB mike.

Earphones
For years I’ve used a simple wired USB headset with a boom mike. For this column I’ve been testing Logitech’s Zone Wireless Plus which has noise cancellation and is so comfortable that my ears don’t hurt after wearing them all day. It also uses unifying dongle that connects all Bluetooth Logitech devices using only a single on USB port.

Lighting
Have light in front of you not behind you. In other words, don’t sit with your back to a window. Sit facing a window with your computer and the web cam in front of

Background
Think about a backdrop that looks professional. Put three Ikea Billy bookcases a foot behind your chair and stuff them with your favorite business books. It’ll looks great.

If you’re in sales or really want to impress clients put a monitor in the bookcase hooked up to an old laptop or computer and display your client’s logo on it. Set the monitor to the lowest brightness.

Unless you have a perfectly evenly-lit green screen behind you, forget the virtual backgrounds that Zoom offers. I’ve watched so many people on Zoom have parts of their body or head disappear during a call – magically blurring into the background – only to re-appear a minute later. It’s unnerving and looks unprofessional.

Summary
The consequences of the pandemic are going to continue far longer than many people realize. Google has told its employees not to expect coming back to work until July 2021 at the earliest. And Dell Computers has said that half of its 165,000 employees will never come back to work – instead they will be working from home.

If you want to read more this column will be expanded online to a 2,000 word analysis.

Jim Harris is the author of the Blindsided which focuses on disruptive innovation. It is published in 80 countries worldwide and is a #1 international bestseller. You can follow him on Twitter @JimHarris or email him at jim@jimharris.com

Image source: https://www.bloombergquint.com/gadfly/zoom-beats-skype-google-to-win-the-remote-working-app-war

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Cheaper batteries, COVID-19 and autonomous tech are all driving the death of legacy car companies

At Tesla’s Battery Day in September, CEO Elon Musk announced a number of innovations that should, if all goes according to plan, drive down battery prices by 56% by the end of 2023. That’s when Musk plans to release a US$25,000 electric vehicle (nicknamed the Model 2 by the company’s fans) – that’s $10,000 less than what the average new gas-powered car currently costs in the U.S. Its arrival is destined to spell trouble for the US$10-trillion global transportation market.

Historically, EVs have been about $12,000 more expensive than gas cars, in large part thanks to battery costs. But as batteries become cheaper every year, EV sales have been growing exponentially. The cost of lithium-ion batteries plummeted 89% from 2010 to 2020, according to Bloomberg New Energy Finance. In 2016, batteries accounted for 48% of the cost of EVs. Today, that’s fallen to 26%.

It’s not the only trend driving the conventional car industry off a cliff.

Pandemic is fuelling “peak auto”

Other than spikes in leisure-wear sales, the pandemic has dramatically slowed consumer spending – and cars are the second largest capital expense for North American families, after housing. Seventy million U.S. households own two or more cars, and pre-pandemic, the average American worker spent five work weeks a year in traffic commuting to and from their jobs. Now that approximately 40% of the U.S. and Canadian labour force is working from home and corporate leaders and businesses have accepted that people can do so productively, some families will decide they don’t need a second car. This will have big implications for car sales.

While some studies have found that those who are still commuting often prefer driving solo to taking the subway or ride-hailing, KPMG projects that the work-from-home trend, along with more people shopping online, could take seven to 14 million cars off U.S. roads alone.

A growing number of pandemic-era commuters who don’t want to crowd into mass transit are going the micro-mobility route, fuelling sales of bikes, e-bikes and electric scooters – particularly in place of the staggering 60% of U.S. car trips that are less than five miles. Scooter-sharing companies Lime and Bird are the two fastest-growing firms in U.S. history – both reached $1 billion in market valuation within 12 months of launch. All scooter-sharing companies combined are set to exceed 500 million rides globally in 2021.

In Canada, Calgarians have taken almost two million rides on rented e-scooters. There are also pilot projects in Waterloo, Montreal, Edmonton, Ottawa and Kelowna. For a growing cohort of millennials debating whether to buy a car or use a scooter-sharing service at 35 cents a minute, the choice is pretty clear-cut.

Shifting national policies

National policies are already dramatically accelerating the adoption of EVs. For instance, Norway has the most aggressive goals globally, prohibiting the sale of any new fossil-fuel-powered cars by 2025. The target is already working. In December, 67% of all new cars sold in the country were pure battery electric vehicles, and when plug-in hybrid EVs are included, that figure jumps to 87%.

In November, Britain announced that it would ban the sale of new gas and diesel cars and vans from 2030 onward – five years earlier than previously promised.

In the U.S., California has banned the sale of new gas-powered cars and trucks by 2035. Considering that California has the fifth-largest economy in the world, the move sends a strong signal to American automakers. The signal would be even stronger if Canada and the incoming Biden administration instituted a North America–wide ban on new internal-combustion vehicle sales.

Closer to home, Quebec announced it will ban sales of new gas-powered cars from 2035. Montreal may do so by 2030. B.C. will follow suit in 2040.

Pension fund liabilities

Traditional car companies face another threat: pension fund liabilities. Legacy auto companies made historical commitments to retired employees. Many of these had defined benefits. For some car companies, these future commitments exceed the value of the pension fund. That gap between the value of the pension fund and the liabilities is called “unfunded liability.”

General Motors is one of the 10 U.S. companies with the largest pension-funding gaps relative to their market capitalizations. GM’s unfunded pension liability is a whopping US$14.4 billion according to S&P Global Ratings – that’s about 24% of the company’s current market worth. Ford’s is US$10.2 billion, or 30% of its market value, as of November 2020.

Their pension troubles aren’t surprising if you track the market cap of GM, Ford and Fiat Chrysler (FCA). Even if you combined the market value of these three legacy automakers and multiplied by six, it would still be less than the value of Tesla, at US$717 billion as of December 2020.

Total cost of ownership

Electric cars are not only becoming cheaper to buy; they’re also cheaper to drive and have serviced. While the traditional gas car has more than 2,000 moving parts, an EV has just 20, which means there are far fewer ways that an EV can break down. Maintenance costs for an EV are a stunning 50 to 70% less than for a gas car. Similarly, fuel costs for an EV are roughly 70% less, depending on the electricity rates in your province or territory.

For Canadians, EVs will eventually be cheaper to insure, too. Since Teslas come equipped with a number of autonomous safety features and have been found to have 85% fewer accidents per million miles travelled compared to cars with no autonomous features, Tesla is offering policies to California Tesla owners at 20 to 30% less than traditional insurance companies. The company plans to expand its insurance to other U.S. states in the future.

Autopilot overtakes gas cars

ARK Invest predicts the rise of autonomous EV fleets by 2024. Think Uber and Lyft but green and without a driver. The predicted cost of transportation will plummet from the 70 cents (U.S.) per mile car owners pay to just 25 cents per mile – that’s a two-thirds cost reduction. Who is going to buy a new car when they can get around effectively with “mobility as a service” (MaaS) for a third of the cost?

Traditional car companies are facing death by a thousand cuts: the climate crisis, the fall of fossil fuels, electrification, the rise of autonomous EV fleets, Tesla, legacy pension liabilities, shifting mandated national policies, and dampened demand for autos in general. According to Cathie Wood, ARK’s founder and chief investment officer, EV sales will grow nearly 20-fold, from 1.8 million in 2019 to 35 million, or 40% of total global auto sales, in the next six years. I predict that two major global car companies will cease to exist by the end of 2025. They will either go bankrupt or merge – as did Fiat Chrysler, which in December got EU approval to merge with Peugeot.

In the U.S., the switch from horse-drawn carriage to car was swift. In 1910, only 11% of passenger miles were by car; by 1920, it was 81%. Expect the same swift shift from fossil-fuel-powered cars to EVs. The demise of traditional auto firms will come far faster than we imagine.

Jim Harris is the author of the Blindsided which focuses on disruptive innovation. It is published in 80 countries worldwide and is a #1 international bestseller. You can follow him on Twitter @JimHarris or email him at jim@jimharris.com

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Medicalization of the Smartphone Driving Adoption

By Jim Harris

The COVID crisis is turbo charging the adoption of telemedicine and transforming health care. During the COVID-19 outbreak in China a staggering 50% of all medical visits were remote. Who really wants to go sit in a hospital or doctor’s office with people who are sick? When was this ever a good idea?

With more than 300 million registered users in China, Ping An Good Doctor, is the world’s largest health care platform offering online consultations, hospital referrals and appointments, health management, and wellness interaction services. It connects individual consumers with health care resources.

US Telehealth
At the end of 2018, digital health was a $3 billion industry in the US. By the end of 2020 it will be a $250 billion a year industry in the US, according to McKinsey & Company. The COVID pandemic is driving almost 100X growth!

Digital health was used by 11% of US patients in 2019 and during the pandemic that surged to 46% in 2020. The adoption of telemedicine shifted into hyper-drive, with US virtual health-care interactions on pace to top a billion in 2020, according to analysts at Forrester Research.

UK’s Babylon Health
Babylon Health allows someone to access a doctor online by video conferencing and extensively uses artificial intelligence (AI) to prompt the doctor on what question to ask the patient and, with each answer, the system re-calculates the probability of what the patient’s medical problem is.

The AI also monitors the facial reaction of the patient – alerting the doctor to changes. The system, for example might warn, “The patient looks concerned,” to which the doctor might say “You look worried” and the patient might reply, “Well it sounds pretty serious.” The doctor might then say, “Well if it’s condition X, then it can be easily treated with antibiotics.”

AI is in its infancy and, as it continues to exponentially improve because of computing power and improving algorithms, this will further drive the adoption of telehealth. Babylon is valued at $2 billion – not bad for a start up founded in 2013.

Not Just the Way We Access, It’s What We Access
Mental health is the most under reported crisis of the pandemic and will be a major driver behind sustained virtual care engagement.

Marc Benioff, the CEO of Salesforce, revealed that a staggering 36% of the company’s 50,000 employees are experiencing mental health challenges during the pandemic – and that’s in a company that’s been growing during this crisis. What then are the rates of mental health issues for those in the general public who face job loss, financial difficulties and health and health care worries?

A staggering 31% of all virtual health care visits are for mental health. The pandemic is isolating. Many people with non-COVID medical problems are not seeking health care because they fear going to health care facilities. Many are suffering in silence. People need remote assistance.

Technology Enabling Transformation
Some smartphones now have 108 megapixels (MP) cameras and Qualcomm’s Snapdragon 865 processor supports up to 200MP image sensors. With such high resolution photography, a picture of an eye can be analyzed using AI to determine the gender of the individual, whether they are a smoker and what their risk of heart disease is. Smartphones are enabling remote diagnosis.

We’re seeing the medicalization of the smartphone. A University of Cambridge app listens to a user’s breathing and coughing and predicts whether they have COVID or not. Wearables too are changing health care. Apple’s Series 4 watch incorporates an ECG function so that a patient’s heart rate and rhythm can be monitored and setting off an alarm when abnormalities that would lead to a heart attack are detected.

Not A Technology Issue
In a rare partnership Apple and Google enabled instant, real-time COVID contact tracing for three billion people that have an iOS or Android smartphone. So it’s not the technology that’s holding digital transformation back, it’s regulatory barriers, legal issues, privacy and political concerns.

Benefitting By Breaking Barriers
The COVID crisis is breaking these barriers that have historically retarded telehealth adoption. US health care spending is more than $3.6 trillion representing 18% of US GDP. The COVID crisis is forcing innovation such that we can get better health care outcomes at lower cost by eliminating waste and inefficiency. The most authoritative studies peg health care system waste and inefficiency at $760 billion to $935 billion a year. So out of this terrible COVID crisis is coming great benefit. As the saying goes, “A crisis is a terrible thing to waste.”

Jim Harris is the author of the Blindsided which focuses on disruptive innovation. It is published in 80 countries worldwide and is a #1 international bestseller. You can follow him on Twitter @JimHarris or email him at jim@jimharris.com

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The COVID Crisis Accelerating Mobile Dominance

By Jim Harris

MOBILE FIRST FIRMS have a 825% higher value upon IPO than companies with no mobile focus, highlighting how essential mobile is for success. This is a staggering finding from the 2020 Mobile Report by App Annie. Here are a few reasons:

Scaling
Mobile first firms scale far faster than physically based enterprises. Uber which was founded in March 2009 is worth more than every taxicab company in North American added together!

Supercomputer In My Pocket
In 1997, IBM’s Deep Blue supercomputer beat world chess champion Garry Kasparov. For IBM, this was a $100 million project. Today the $1,000 smartphone I carry in my hip pocket has more raw computing power than Deep Blue. Companies that have no mobile focus are choosing not to use the smartphone supercomputer that rests in billions of peoples’ pockets or purses.

Location
The highest revenue for any non-gaming app is . . . Tinder. Tinder uses geo location to match users with others nearby. In the same way, LetGo and OfferUP use geo location to allow local buyers and sellers of second hand items to instantly connect. Both companies are less than 10 years old and each have a valuation of $1.5 billion. In March 2020, they announced that they will combine their US operations.

All Needs
Millennials and GenZ live a mobile-centric life. They turn to their mobile to connect, for entertainment, for dating and relationships, for buying and selling, for researching purchases, for health and fitness, education, work, leisure, watching video and movies and staying connected with family. The literally use it for everything. The experience and expectations that these two generations have in gaming and in using dating apps like Tinder they bring to every other company and industry.

COVID Driving Surge in Application Use Globally
During Q1 of 2020, mobile use surged by 20% compared to Q1 2019, driven by the COVID crisis, notes Lexi Sydow, Senior Market Insights Manager at App Annie. In 2019, the average global smartphone user spent 3 hours and 40 minutes on their smartphone per day. During the COVID crisis that spiked to 4 hours and 20 minutes in April 2020. How many firms have the luxury of choosing not to interact with the primary media their customers use?

Uber Eats saw its business grown 89% in April 2020. How many companies can claim that kind of growth with the economic lockdown?

And while gaming and entertainment apps have seen significant growth, business app downloads have almost doubled on average compared to 2019:

Source: App Annie The Impact of Coronavirus on the Mobile Economy

Future Growth
Gen Z (born 1997 and later) spend 40% more time on mobile. Gen Z is already the largest US demographic, highlighting how mobile will continue to grow.

Asset managers retain less than one third of assets of clients upon death, because they don’t have a relationship with the next generation or serve their clients’ children in the way they wish to be served. This is why investment firms need a mobile first focus even thought their current clients (aging boomers) aren’t asking for them.

COVID Consequences Are Profound & Will Be Permanent
It took 10 years for eCommerce to grow by 11% – from 5.6% in 2009 to 16.3% in 2019. And then COVID hit and online shopping grew by 11% in 8 weeks. (from 16.3% in 2019 to 27% at the end of May 2020).

While every other retailer is shuttered (with the exception of grocery stores and pharmacies), Amazon has had to hire 175,000 people during this period to keep up with orders. Millions of people are being forced to be introduced to the ease and convenience of eCommerce. And it’s not just Amazon that’s benefitting from surging demand, Walmart.com experienced a 74% surge in online sales in Q1 of 2019. The majority of eCommerce page views are mobile.

Source: Bank America, US Department of Commerce, ShawSpring Research

Mobile shouldn’t be an afterthought to any company’s strategy, to thrive in the post-COVID world, it must be central.

Jim Harris is the author of Blindsided which focuses on disruptive innovation. It is published in 80 countries worldwide and is a #1 international bestseller. He speaks at virtual conferences and webinars internationally. Subscribe to this YouTube channel at http://bit.ly/2lFJB5F follow him on Twitter @JimHarris or email him at jim@jimharris.com

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Electrification, Autonomous Vehicles and the Internet of Things revolutionize the school bus market

By Jim Harris

The price of Lithium-ion batteries has plummeted by 89 percent from 2010 to 2020, according to Bloomberg New Energy Finance (BNEF), and the trend will continue:

Source: BNEF

The largest cost of electric vehicles (EVs) historically has been batteries. In 2016, for instance, batteries were 48 percent of the cost of electric vehicles. Today, that’s fallen to only 26 percent, according to BNEF. Electric vehicles are getting cheaper and cheaper every year.

Tesla Battery Day
Tesla’s Battery Day was on Sept. 22, which happened to coincide with my Tech Talk on Day 2 of the virtual Bus Technology Summit presented by School Transportation News. Tesla CEO Elon Musk announced many innovations that will dramatically drive down battery prices even further over the next three years. By the end of 2023, batteries will be 56 percent cheaper per kWh—$58/kWh based on BNEF’s weighted volume average price.

This will completely disrupt the $10 trillion global transportation market and it will have a profound impact on the school bus market.

By the end of 2023 electric vehicle (EV) passenger cars will become cheaper than gas powered autos. Musk announced that Tesla will release a $25,000 EV, which has been nicknamed the Model 2 by the company’s fans. Given that the average new gas car costs $35,000, that spells big trouble for the U.S. auto industry.

Transportation Markets Transforming Faster Than Expected
Because of exponential improvements in the price performance of technology, transportation markets are changing faster than most people realize.

In 2008, when Google introduced its autonomous vehicle, the self-driving technology cost an extra $200,000 in addition to the cost of the car.

Detroit auto executives looked at the experiment and said that Google was wasting money. Who was going to buy autonomous features that cost an extra $200,000?

But these executives didn’t understand the impact of exponential change. Two years later, the technology was $100,000. Again, Detroit executives still saw no reason to explore autonomy. A year later, the tech was only $50,000. Today, it’s less than $1,000—that’s the compounding effect of exponential change over 12 years.

Now, Detroit car companies are scrambling to buy autonomous vehicle start ups. Traditional car companies typically take five years to plan, pilot and perfect new cars. Do you see a problem? Google has a 12-year head start on traditional car companies.

Let’s look at the cost of just one part of the autonomous system, called Lidar, a technology for measuring distances of objects. In 2012, the Lidar systems for autonomous vehicles cost $75,000. By 2018, that had fallen to just $40 because there were multiple technologies in Lidar that were all exponentially improving in price performance, compounding the cost declines. In 2020, the cost is only $10.

Tesla’s Value
As of last month, Tesla’s value is $387 billion. Compare that to the value of Ford added to General Motors added to Fiat Chrysler. Today, these three traditional Detroit automakers are worth $86.4 billion combined. So, you can quadruple their combined value and they’re still worth less than Tesla. That should be a clear warning that profound change is eventually coming to the school bus market.

Cheaper, Faster, Smaller, Better, Easier To Use
Technology isn’t just getting cheaper its getting smaller, faster, better, more versatile and easier to use all at the same time. Do you remember when you bought a GPS—a Garmin, TomTom or Magellan? It probably set you back $700, plus you had to pay to subscribe to map updates. Well, if you own a smartphone, you have GPS embedded in it for free and can find the fastest routes around traffic jams and accidents. And it means you never have to buy a map book again. So exponentially improving technology can eliminate costs while improving the driving experience.

The improvements announced by Tesla, mean that batteries will be 56 percent cheaper per kWh in three years. At the same time, range will increase by 54 percent and the cost of investment to produce each GWh of batteries will fall by 69 percent. In other words, there are multiple benefits to the innovation.

Let’s look at what happened to taxis in the largest U.S. taxi market, New York City (NYC):

Source: https://toddwschneider.com/posts/taxi-uber-lyft-usage-new-york-city/

And the impact on NYC Taxi Medallion prices was profound:

Source: NYC Taxi and Limousine Commission, BUSINESS INSIDER and news reports.

Prices plummeted 90 percent from a high of $1.1 million to $110,000 recently.

Life Cycle Cost
EVs are already cheaper in life cycle cost, sometimes referred to as total cost of ownership. While EVs are currently more expensive than gas- or diesel-powered vehicles to buy up front, fuel and maintenance costs are more than 70 percent lower. For high use vehicles, like taxis and in some cases school buses, the economics of fleet management completely change.

In analyzing cost, an organization needs to look at both the capital costs (CAPEX) and the operating costs (OPEX). For vehicles that have a long life and high use, OPEX costs are often more important that CAPEX.

Here’s a staggering statistic: the average gas car has more than 2,000 moving parts. By contrast an EV has 20:

That’s one of the reasons that EVs have dramatically lower maintenance and repair costs—the design is dramatically simpler.

Tim Shannon, the director of transportation for the Twin Rivers Unified School District in Sacramento, California, has 30 EV school busses and is expecting delivery of another 27 by the end of 2021. That means that his district has the most EV school buses of any district in the U.S.—a record he’s very proud of.

From actual experience of running this fleet of EV school buses, Shannon confirmed the fuel costs for EV busses are 80 percent less than fossil fuel buses and maintenance costs are 60 to 80 percent less.

Twin Rivers doesn’t have to replace brakes as often on EV buses because the electric engines slow the vehicles down when braking. What was unexpected and surprising is the wear-and-tear on tires is less. Batteries are located in the center of the bus to more evenly distribute weight than in traditional busses, thus greatly reducing tire wear.

Other unexpected benefits include not having to have as large of a maintenance team because these buses don’t break down as often as the district’s diesel or CNG buses, and the garage doesn’t have to carry as much inventory of spare parts. “In fact, the only thing we’ve really had to do is change light bulbs,” Shannon noted.

Many of Shannon’s buses have been funded 100 percent through grants, while others only required a $60,000 contribution by the school district. “It’s a use it or lose it principle,” Shannon added. In other words, chase these grants today because they might not be here tomorrow.

Safety & Insurance
A staggering 94 percent of accidents on U.S. roads are due to driver error. We are on the cusp of the age of autonomous vehicles. This is exciting because it means that a staggering 40,000 American lives will be saved every single year and 2.5 million people won’t be permanently maimed. That’s the great news.

If you sell auto insurance however, it’s another story. When there are 94 percent fewer accidents on the roads, the $500 billion a year paid in auto insurance premiums globally will be at risk.

Tesla is now offering insurance for Tesla owners in California. Tesla’s cars have 85 percent fewer accidents per million miles traveled compared to regular gas cars with no autonomous features.

Tesla insurance rates are 20 to 30 percent lower than those from traditional insurance companies. Do you think this spells disruption for the insurance industry?

The important point is that autonomous vehicle mean lower cost of ownership on many different levels: repairs, law suits and insurance are just a few.

Autonomous Vehicles
Waymo is Google’s self driving car division that has driven 20 million miles. Tesla drivers have driven three billion miles in autonomous mode. We are not that far away from the technology being capable of autonomous driving. Law makers will have to catch up with the regulatory environment.

While the cost of cars has remained constant for almost 100 years at 70 cents per mile, the moment we have autonomous fleets of cars—think about Uber and Lyft just without a driver—the cost of travel drops to 25 cents a mile. At that point, the number of Americans buying cars will drop.

Source: ARK Invest

I don’t foresee a future where we won’t have an adult on a school bus. Once we do get to fully autonomous systems, the adult might be an activity coordinator.

Autonomous or, more aptly for school buses, automated fleets can have other benefits for school districts. Imagine being able to get more drivers by having autonomous vehicles pick up drivers on a route in the morning to get the yard.

Changing Business Model
The town of Innisfil north of Toronto where I live is using Uber as its public transit. The town is saving $8 million a year by not having to buy buses, hire drivers and have a maintenance yard and staff.

And which would you rather do in minus 20-degree weather? Wait at a bus stop, praying that the bus arrives soon, or be treated like the president of any small republic and have the car pull right up in front of your home and take you to where you want to go? (The only difference being that you might stop on the way to pick up other people but you’ll be dropped off at your destination.)

We often think that if you have a higher quality of service, you have to pay a higher price. That’s true if you do things the way you’ve always done them. In this case, the residents and taxpayers in Innisfil are getting better service at a lower price.

How could insights from this example help student transportation directors?

Some districts with low population density and students in far-flung directions are using less expensive smaller vehicles, like vans or even cars, to pick up students that would otherwise require more expensive busses to drive thousands of extra miles per year.

I was working with part makers in Sweden. One of the firms represented at the event was Volvo. One of the sales reps told the following story:

“We were working with a U.S. municipality that had no capital budget to buy busses. We just weren’t going to make a sale.

But this municipality had [an] operating budget.

You’ve heard of SaaS (Software as a Service)? With an SaaS model you don’t actually buy or own the software you essentially rent it on a daily, weekly or monthly basis.

So, we adjusted our business model to essentially rent our busses to this municipality. There were lots of challenges in working through all the details of the contract. But we did it.”

I’ve found over the years that the key to successful consulting is coining a new term that becomes a buzz word. Here’s one of mine: BaaS. Buses as a Service.

Preventative Maintenance
I was in Rome for the launch of a Trenitalia’s new high speed-train that does 224 mph (360 km/hour). The company had installed 1,000 sensors on the train to monitor wear and tear of parts.

Maintenance historically has been scheduled based on the timeline for when a part will wear out on average. But some parts break down before they are meant to and some later, which means that maintenance is either reactive, or replacing parts before they need to be.

Using the sensors is the key to replacing parts before they break. It is saving Trenitalia 10 percent of its €1.4 Billion ($2 billion U.S.) a year maintenance budget. The result is fewer breakdowns, increased safety, increased on time performance, higher customer satisfaction while achieving significant savings! That’s a win-win-win-win-win strategy.

This is called the Internet of Things—or IoT—because all the parts are connected and monitored remotely via the Internet.

Conclusion
Now I know what some of you are thinking. Yada, yada, yada. This Jim guy is going on and on and on about change. I just don’t believe it’s going to happen.

So have a look at this picture of New York City in 1900. If you look really, really closely you can see one horseless carriage (i.e. a car). It’s like a find Waldo game:

Then look at this photo just 13 years later:

If you look really, really closely you can see one horse drawn carriage.

In the course of just one decade, everything changed. We are living through another such period.

Jim Harris was a recent keynote speaker at the first ever virtual Bus Technology Summit. He is also the author of the Blindsided, which focuses on disruptive innovation. It is published in 80 countries worldwide and is a No. 1 international bestseller. You can follow him on Twitter @JimHarris or email him at jim@jimharris.com.

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Firms Focused On Digital Transformation, Mobile First & AI Centric Strategies Experiencing Explosive Growth

By Jim Harris

The Coronavirus has wreaked havoc on the global economy. COVID-19 is hyper-charging the growth of companies that have aggressively pursued digital transformation, by putting mobile first philosophy at the core of their business strategy and embedding artificial intelligence (AI) in all their products, services and business models.

Zoom Zoom Zoom
Zoom had 10 million daily users in December 2019 and in April 2020 that had exploded to 300 million daily participants. How many companies can boast at 30X growth in customer count during the pandemic?

COVID Consequences
Many companies prevented people from working from home pre-pandemic. All that has changed. Companies and boomer executives are discovering that people can be productive working from home.

Post pandemic not everyone is going to want work in the office. Dell Computer in Austin, Texas expects that half of its 160,000 employees will never work from its offices going forward. About 40% of the average large company’s employees could work from home.

I predict that companies will, on average, allow people to work two or three days from home. Firms will realize that they can cut the square footage of their corporate office space by 40% and drive millions of dollars directly to the bottom line. This is bad news for corporate real estate companies and property developers.

Office Towers
An office tower like First Canadian Place at King and Bay Streets in Toronto has 72 stories and 10,000 people who used to work in it every work day pre COVID. With current guidelines of only allowing 2 people in an elevator at a time, are people really going to wait 3 hours to get up to their office in the elevator? And once you’ve finally arrived at your desk it’s time to go back down to the food court for lunch!

Now it’s not that all employees will always work from home, but companies will achieve a new balance or equilibrium – and it will involve less office space and less office time.

Here’s a staggering statistic: the average North America employee spends five work weeks a year in traffic jams commuting to work. That’s 200 hours a year. Is there nothing better that we can do with all that time?

An insurance broker recently told me that he used to drive for two hours, meet a prospect for 45 minutes, sign a new insurance policy and then drive two hours back to his office. That’s five hours out of his day for a single (potential) sale. Now during the pandemic he’s meeting eight prospects a day for a Zoom call and he’s actually INCREASED his sales.

Which bring me to this point:

A crisis is a terrible thing to waste

The COVID crisis is exposing the horrific inefficiency of many corporate processes, policies and procedures.

Pre pandemic many insurance companies prohibited policies from being put in place without a physical signature. The resistant policy was driven by the legal and compliance departments. When the pandemic hit and insurance sales plummeted to zero, the policy changed overnight. This begs the question: was it really a legal or regulatory barrier, or was it a mindset problem? This is policy innovation which will be highlighted below.

“Only a crisis – actual or perceived – produces real change,” said Milton Friedman.

eCommerce Explodes
It took 10 years for eCommerce – or online shopping – to grow by 11%: In 2009, eCommerce was 5.6% of all US retail sales and by 2019 it had grown to 16.3%. The COVID pandemic hyper-charged online sales driving the growth by 11% in just eight weeks!

Source: ShawSpring Research, Bank America, US Department of Commerce

While other retailers were closed (with the exception of grocery and pharmacy stores), Amazon had to hire 175,000 people to keep up with order volumes. How many companies during this crisis have hired 175,000 new employees?

The wave of bankruptcies hitting the retail sector is just beginning. In the US JC Penney, Pier 1 Imports, J Crew and Neiman Marcus have already filed for bankruptcy. In Canada so has women’s retailer Reitmans.

Swiss based analyst firm UBS predicts that 100,000 US retail locations will close going forward as a result of COVID. Even Starbucks in Canada has announced that it will close 200 locations. And before the pandemic even hit, Credit Suisse predicted that 25% of US shopping malls would shutter by 2025 as a result of the relentless growth of online shopping.

The cascading implications are profound: what has been a key investment strategy of pension funds? Investing in real estate – like Blockbuster locations.

Second & Third Order Implications
In the US 70 million households own two or more cars. If I can stay at home working for two or three days a week and my spouse can do the same, and we can coordinate our work schedules, why would we need a second car? This will be very bad for auto makers. I predict that auto sales will fall off a cliff.

Mobility As A Service (MaaS)
A second reason for this prediction is the cost of mobility as a service. For 100 years, the cost of a car has remained constant at 70 cents a mile (when cost adjusted for inflation in 2019 dollars). When autonomous fleets become available in 2024 – think about driverless Uber and Lyft fleets – the cost will drop to 25 cents a mile. At that point who is going to buy a car when mobility as a service allows is one third the price?

Changing Business Models & Types of innovation
Survey people about what is innovative, they will typically answer something like the iPhone. (The iPhone was innovative in 2007 it isn’t so much now but that’s not the point). Likely 75% of the answers will be about a product. Similarly within organizations, 75% of the innovation effort is around product innovation. But product innovation only yields 10% of the value that innovation can bring to an organization. A staggering 90% of the value is in four other areas:

Source: Lee-Anne McAlear, Program Director, Centre of Excellence in Innovation at Schulich Executive Education Centre at York University’s Schulich School of Business

These other areas are business model innovation, process innovation, service innovation (also known as user experience (UX) or customer experience (CX)), and policy innovation. Let’s briefly look at each of these in the context of COVID-19.

Business Model Innovation
Let’s take an example of Uber vs. the taxi cab industry. From a product perspective an Uber and a taxi are exactly the same in that both involve a driver and a car that take a passenger from point A to point B.

Now let’s look at innovation from a business model perspective. If Uber has perfected delivering people from point A to point B with an app and charging my credit card, could Uber deliver a burger?

The answer of course is yes. Let’s call that Uber Eats. In April Uber Eats revenue surged 89% over April 2020 as families in lockdown throughout North America got food delivered from their favourite restaurants.

If Uber can deliver people and burgers, could it deliver manila envelopes and bankers boxes? Let’s call that Uber Courier (it doesn’t exist yet).

How about this: Your dog Fido is sick. If your city is a hotspot for COVID-19, do you really want to drive to the vet, sit in the waiting room for three hours with other pet owners? No. So who you gonna call? (the Ghostubster’s refrain). Answer: Uber Pet. It’s actually operating in US test markets.

What about Uber Alcohol, or in Canada since marijuana is legal, Uber Weed? Delivering your favourite bottle or blend right to your door. These are business model innovations.

Currently Uber is worth more than every taxi cab company in North America ADDED TOGETHER! This is in part because it’s more focused on business model innovation rather than product innovation.

Cab Company Response
What are cab companies doing in response? Well in Toronto Diamond Taxi is spending $250,000 to develop its own app. My response? (said sarcastic tone: Good for them!) . Beck Taxi is doing the same thing. So are many other Toronto Taxi Cab Companies.

I don’t know about you, but the reason I got my smartphone was to download 19 different Toronto taxi apps and key in my data into each app separately on my smartphone with my fat thumbs into each one. NOT! I haven’t t downloaded a single one of these apps.

But pre-COVID I didn’t just work in Toronto I was in Stockholm, London, Rome, Milan, Davos, Shenzhen, Los Angeles, San Diego. Am I about to download 19,000 different taxi apps from cab companies? No way!

Cab company executives don’t realize that the Lord of the Rings principle applies. I want one ring to rule them all. If all 19,000 global taxi cab companies cooperated and developed a single app – call it the Global Taxi App – I’d download it just as I have with Uber and Lyft. The benefit to cab companies would be profound, because rather than wasting a quarter million developing an app that I’ll never download, these companies would only share in 1/19,000th of the cost!

But this requires different thinking at a higher level. I call it a meta level. Diamond Taxi has to work collaboratively with Beck Taxi and every other cab company in the world.

Here’s the number of daily trips in New York City by NYC’s iconic yellow taxis, Uber and Lyft:

Source: https://toddwschneider.com/posts/taxi-uber-lyft-usage-new-york-city/

The consequence of not thinking at a business model level has been profound. In 2013, taxi medallions in New York were worth $1.1 million (in 2020 dollars). Most recently they have traded for $110,000. That’s a 90% reduction in asset value. The experience has been the same in Toronto. In 2012 taxi plates sold for $405,000 (adjusted for inflation) and now you can buy one on Kijiji for $20,000. That’s a 95% decline in asset value. The consequence of not thinking at a business model level can be disastrous.

Movie Theatres
Trolls World Tour, released by Universal Pictures to Video on Demand (VOD) during the COVID lockdown, made more money in the first three weeks for the Hollywood studio than the original Trolls movie made during five months in theatres.

Trolls World Tour was the first movie Universal has ever released directly to streaming for $19.99 on platforms like Apple TV.

The first trolls movie made $153.7 million – but 50% went to Universal and 50% went to the theatres. But with the release of the second installment of the franchise, Universal kept 80% of the digital sales. This calls into question the economic viability of movie theatres going forward.

Business Process Innovation: Supply Chain
The global supply chain will be forever changed as a result of the coronavirus. Most corporate supply chains are stretched across many countries and thousands of miles. The COVID crisis highlighted how fragile these are.

The average gas car has 2,000 moving parts. If a single part is missing, the car can’t be produced. By contrast a Tesla has only 20 moving parts, and Tesla manufacturers most of its own components. The company is vertically integrated.

When supply chains experience profound disruption, companies need to think about the design of their products, redesigning for simplicity to create resilience in the face of uncertainty. But this again requires thinking implicatively at a meta level.

3D Printing
In Edmonton, 13-year-old began 3D printing protective medical equipment for local hospitals on his 3D printer that he got for Christmas. Prusa, a 3D printer company, published the design, allowing its customers around the world to help hospitals and medical professionals. What are the implications of the exponentially improving price performance of 3D printing on distributed manufacturing and supply chain logistics?

Service Innovation
Lemonade insurance out of New York City offers tenant insurance for as little as $5 a month. People can only apply by smartphone. It’s aimed at millennials and GenZs. Lemonade has the world record for a claim settlement: 3 seconds. Compare that to the eight weeks you used to wait on average to get your insurance check in the mail in the 1990s if you had a car accident. Once you’ve answered all the questions from the claims bot on your smartphone, taken a photo of the police report, and hit the submit button, your claim data is run against 18 different fraud algorithms in the cloud and thee seconds later tells you if you’re instantly approved. Lemonade’s goal is to settle 80% of all claims instantly this way. This is both service innovation – offering a vastly better customer experience and process innovation.

Similarly with Uber you know the price of your ride before you get into the car. Not so with a taxi. It’s like playing Russian roulette with your wallet. With Uber you can see the car coming. Not so with a cab. There are dozens of points of differentiation between Uber and taxis. Here’s one: New York’s yellow cabs used to have the daily shift change right at 4-5pm when everyone wanted to get home. Meaning that you couldn’t easily get a cab in rush hour. The exact opposite of customer centric focus.

Mobile First & AI First
Mobile first firms have a 825% higher value upon IPO than companies with no mobile focus, highlighting how essential mobile is for success today. This staggering finding is from the 2020 Mobile Report by App Annie. Mobile is at the heart of Lemonade’s strategy, Tesla’s, Uber’s, Amazon’s, Google’s and Facebook’s.

It’s Not About Tech
Having read to this point, many people might assume that this is a story about technology. It’s not. It’s really about people, culture, mindset and transformation.

If I have a computer on my desk, but don’t know how to turn it on, it doesn’t offer any strategic advantage. Yes, innovation is enabled by technology but deriving benefit from it is really about cultural transformation. It starts with mindset – as exemplified by the insurance company shift of not allowing digital signature to put policies in place.

Stephen Covey, who I used to represent teaching The 7 Habits of Highly Effective People, would urge clients to train every single person in the 7 Habits. Why? because it created a common language, it began the process of cultural and organizational change. The same is true today for innovation.

Here’s a graph of CEO’s focus on innovation. 88% of CEOs say that innovation is essential to their top line and bottom line, but only 22% of companies have a formal innovation process!

Source: Leger (2007), www.leger360.com

Could you imagine if the survey had focused on sales and got the same results? In other words 88% of CEOs say that sales are essential for driving revenue and profitability, but only 22% of companies have sales people. Only 22% have sales systems or a CRM like Salesforce, only 22% conduct sales training. Only 22% tie compensation on a quarterly or annual basis to performance for sales people. The other roughly 80% of companies hope that sales will just organically, magically happen. That would be an insane position to take, and yet that’s the approach that companies are taking to innovation.

In times of rapid change – like the COVID crisis – investing in innovation in training and development for everyone in the organization is all the more important. From a separate study the biggest source of new innovative ideas is from employees.

Reality Check
Let’s pause for a reality check. We’re never going to return to the new normal because: 1) Governments are spending the largest sums ever on stimulus packages. McKinsey & Company predicts that the total spending may hit $30 Trillion by 2023. The cascading consequences of this are taxes will go up in the long term.

How long will this go on?
It’s important for corporate leaders to get a level set for expectations on how long it will take for this to be “over.” First off to let’s remember that we had SARS in 2002-2004 and MERS in 2012. Both of those were corornaviruses just like COVID-19, and yet we still don’t have any vaccine for ANY coronavirus. Vaccines typically take at least two years to develop. Bill Gates has predicted that it will be at least another 18 months before we see a vaccine. And once we do have one there’s the small detail of how long it will take to vaccinate the majority of the world’s 8 billion people.

Conclusion
So to survive and thrive executives and companies can’t wait for things to go back to normal. That’s a strategy for market share loss, irrelevance and ultimately bankruptcy. Instead leaders must aggressively pursue innovation at all levels – business model, process, UX or CX, policy as well as product and involve every single employee in innovation efforts.

Jim Harris is a leading international disruptive innovation speaker. His last book Blindsided is published in 80 countries worldwide and is a #1 international bestseller. You can see one of his talks at https://www.youtube.com/watch?v=WbfRPztsKLY

Jim Harris is one of the Top 50 digital influencers in the world.

For interviews, contact Jim Harris, jim@jimharris.com or by calling (416) 388-3432.