This week: why exponential growth is big, remember eBay? and is Uber changing cities. Sandra Peter (Sydney Business Insights) and Kai Riemer (Digital Disruption Research Group) meet once a week to put their own spin on news that is impacting the future of business in The Future, This Week.
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Robot of the week
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October 25, 2017
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Intro: This is The Future, This Week on Sydney Business Insights. I'm Sandra Peter. And I'm Kai Riemer. Every week we get together and look at the news of the week. We discuss technology, the future of business, the weird and the wonderful and things that change the world. OK let's roll.
Kai Intro: Today in The Future, This Week: why exponential growth is big, remember eBay? and is Uber changing cities.
Sandra: I'm Sandra Peter, I'm the Director of Sydney Business Insights.
Kai: I'm Kai Riemer, professor at the Business School and leader of the Digital Disruption Research Group.
Sandra: So Kai, what happened in the future this week?
Kai: Our first story is from Singularity Hub. It's titled "Does our survival depend on relentless exponential growth.
Sandra: So the author Thomas Hornigold talks about this idea of exponential growth and the way we're locked in to a system where a global economy depends on relentless growth and the increasing consumerism and wanting and buying more and more things. This indeed would increase our human footprint and a depletion of all the resources that come with all that growth whether that is consumer products or services or fossil fuels and so on. And he talks about the role of technology being locked into this race where the technological advancements that we have actually have to outpace the exponential growth that the economy is locked into. So technology will continue to improve our standard of living as long as it just grows faster than our need to consume more goods and services.
Kai: Yes and he is quite positive about this. So he looks back and says in the 1790s people were worried that population growth would result in an inability to feed all the people on the planet. But since then population has grown exponentially and we have been able to innovate and with new technologies, with new ways of growing crops, we have been able to feed a growing population and we would be able to feed 10 billion people today if it wasn't for the problems with equal food distribution. So he's actually quite positive about our ability to engage in this innovation race.
Sandra: Even though he says that there might be some limits to this exponential growth on a finite planet and around sustainability, on the whole he's fairly positive. So let's unpack a little bit this idea of what is exponential growth. What is the conversation around it and how do we think about these dynamics at play.
Kai: This is actually an argument that is made on Singularity Hub quite regularly that we're very bad at understanding exponential growth but we should be better at it. So let's look at what exponential growth is. Now take an example: if you're creating an app and you are attracting customers to it and say you launch it in the first week of January and you have one user on it which is a friend of yours and they invite a second user and that grows to two users in week two and each one brings another one so you grow to four and then you double it every week. At what point do you have the entire population of the planet using your app?
Sandra: So it should take me quite a while to reach the entire population?
Kai: September. In September of the same year. So this is the nature of exponential growth which underpins many natural phenomena like you know this is the way in which viruses infect and then kill a host for example. But the argument is that normally in life we do not encounter these kinds of phenomena most growths that we encounter is much more linear. And so we tend to underestimate the way in which the exponential growth blows out in the later stages of the growth phase.
Sandra: So one of the ways we've actually seen exponential growth in business and technology has been around microchips. And Intel CEOs and the engineers that intellectually do this interesting thought experiment to try to show you just how big this growth is. So if we're looking at the 1971 microchip that Intel invented and we look at the exponential growth that microchips have gone through, we're seeing Moore's Law at work. If you look at Intel's latest chip, so this is from 1971 exponential growth until today, we see three and a half thousand times more performance, we see ninety thousand times more energy efficient chips and about sixty thousand times lower cost. As Inetl was trying to explain this, they thought well a better way to think about it would be to do a rough calculation of what would happen to a car. Take a 1971 Volkswagon Beetle, the same year as the first microchip, and try to figure out what would the numbers look like today for that car. If the car had the same exponential growth as the microchip you would be looking at a car that runs at 300,000 miles per hour, that is when it's not stuck in the tunnel or on Sydney Harbour Bridge, it would do two million miles to the gallon and it would cost you...
Kai: I don't know.
Sandra: Four cents.
Kai: It's actually a good example that shows that very few phenomena actually follow this exponential growth pattern over a longer period of time. In the tech world this computer chip example is the one that is being mentioned over and over again. And despite the obsession that has engulfed Silicon Valley with exponential growth, and it's a real big thing there now, most phenomena only show exponential growth for a very short period of time. And the reason for that is, which you can see with the app example, once you have every single person on the planet using your app, growth is finished right. So you cannot grow exponentially for a long period of time because growth will eventually plateau out or even worse all resources are used up and the resource pool is depleted and you cannot grow any further.
Sandra: And even something as widely known as Moore's Law which since 1965 has predicted that the number of transistors per square inch would double every year, even that's coming to an end because we are getting to the physical limits of what we can actually achieve.
Kai: Yes physics is getting in the way now, we're reaching the atom level size of transistors now where putting more transistors on a microchip is just not going to be possible anymore. So let's look at the obsession with exponential growth in the technology world. Ray Kurzweil makes the argument that today most innovations and technology are on an exponential growth curve and we really should understand exponential growth if we want to predict the future. And while I wholeheartedly disagree with that because there's no evidence in my view that other than microchips so far that technology is growing exponentially, it's not happening in AI, the singularity is not near, we're making incremental progress, very slow progress in fact of making these machine learning algorithms useful, they have biases and the like, smartphone innovation is coming to an end. Uber platforms, Facebook, all of them have shown that yes there is some exponential growth for quite awhile but then things plateau as you would expect. There is a kind of obsession with exponential growth that every app that is being launched, every technology that is being flogged, purports to bring about exponential growth and it has shaped the way in which venture capitalists distribute their funding. If you give money to 100 different businesses only one of them will have to become a success growing exponentially to make up in what they return to cover the cost for the remaining 99.
Sandra: Because the exponential growth in technology is said to be the only solution that we have to the exponential growth in demand or population or consumerism. It is sad that we have no other solution except for this.
Kai: Absolutely. So there's now a certain belief that technology will develop exponentially and that we are going to be able to solve every problem because of the way in which technology develops. And while that might be true for certain technical aspects of technology the evidence for what we actually do with technology in the social world in my view doesn't point to exponential growth in productivity or prosperity or efficiency. In fact progress has been quite slow in some of those areas despite the exponential growth in computing power for example.
Sandra: So whilst we might all have mobile phones whilst we might all have access to a lot the consumer goods that these innovations have spurred on the real growth in efficiency, the ability to do completely new things, hasn't been growing at an exponential rate.
Kai: No, but that doesn't mean that we can dismiss the phenomenon because what has happened in the meantime is that our resource hunger and the way in which consumption has grown and the way in which we are depleting the resources of the planet for example is on a trajectory that is unhealthy, that is growing ever more quickly. So exponential growth is something that we have to understand.
Sandra: And especially the fact that this cannot go on forever. We've traditionally seen companies and are increasingly seeing companies address more and more social and ecological goals. We've seen a concern with sustainability. So could sustainability be an answer to exponential growth?
Kai: Well it depends on what you mean by sustainability if we mean by sustainability that we limit growth to a certain percentage, then the question remains how do you achieve that at a global level, at a system at an economy level when the incentives for companies are to compete and to exploit resources which will invariably lead to more growth. So the difficulty of achieving sustainability at a global level have led people like Tim Jackson to argue that we have to actually rethink the idea of growth and to come to a different understanding of the economy itself and do away with the truism of what he calls the impossibility theorem that there cannot be a society without growth and to fundamentally alter our thinking about this. So let's hear from Tim Jackson.
Audio of Tim Jackson: Here is the story of those years and our consumer society. It's a story of us. Being encouraged, persuaded perhaps to spend money we don't have, on things we don't need, to create impressions that won't last, on people we don't care about. Or worse still, who don't care about us.
Sandra: So Tim Jackson is a British ecological economist and he's a professor at the University of Surrey and a few years ago wrote a book called "Prosperity without growth" and he challenges this whole idea that the kind of growth that our global economy is currently predicated on is the only way for us to go forward. And let's not forget this is not a new conversation it's not a central conversation but not a new one the Club of Rome warned us back in 1972 of the limits to growth which was already recognised as the elephant in the room and there have been a few people like Naomi Klein or Bill McKibben or Robert Costanza, Peter Victor all these people who have started challenging the idea of growth as the only way to achieve prosperity.
Kai: And so what Tim Jackson alludes to is that we are caught up in a world of consumerism that has at its biproduct an unhealthy impact on how we deplete the resources of our planet. And his suggestion is that we have to expose, talk about, and rethink the assumptions that our current economic system is built on and that we should not take for granted that we are caught up in an exponential growth spiral. So what we have here now is two fundamentally different positions whereas the Singularity Hub article makes the point that we are in an exponential arms race and that we have to become what they call acceleration lists where we have to innovate and work with technology to win this race. Tim Jackson says that we have to actually break that trajectory. We have to fundamentally rethink the rules of this game rather than become quicker and faster at playing this game. And this is a discussion that we think we will have to have in the future because it is at the heart of problems like climate change and resource depletion and solving the problem of world hunger feeding a growing population.
Sandra: And our next story today actually exposes how difficult it is to have these conversations because of the very nature of the public conversations that we have today. Our second story concerns eBay. Remember eBay?
Kai: Well all of us are using eBay but we have been discussing technology on this podcast, big brands Amazon, Apple, Microsoft but we've never mentioned eBay. And the article that we're discussing is from racked.com and it's entitled "Nobody thinks about eBay". While eBay has 171 million users, it has been growing, it is doing great things, it's a successful market platform, it is no longer growing exponentially and it's not in the media and it causes problems.
Sandra: Yes. As the article mentions it's grasping for relevance.
Kai: And that relevancy is one of attention. It is one of pressure that the company faces to innovate, to do new things to become exciting.
Sandra: So let's unpack that because this is about two stories. One is the real story - the story about what actually is happening to eBay and the other one is a perception story, is how the public, the community investors how they see eBay. So first the actual eBay story: the company with a one hundred seventy one million users, with 1.1 billion items listed at any given time.
Kai: The company that has added to its portfolio: Paypal, Craigslist, StubHub in Australia Gumtree, Skype at an earlier stage, and that has worked relentlessly to build its portfolio of user to user market place offerings.
Sandra: And whose revenue has hovered about nine billion dollars which is by all means a significant figure. It's one that's risen slowly over the last five years.
Kai: But the criticism that is hurled at eBay is that eBay is no longer exciting because supposedly it has only continued to successfully build according to its main purpose of becoming a successful consumer marketplace. But it hasn't engaged in the tech game. It hasn't become an Amazon, engaged in all kinds of different areas of high technology. So the question is: is it still okay to just be a company with a clear purpose and innovate along the path of becoming the best possible business with that purpose? Or do companies have to become innovators for the sake of applying technology?
Sandra: The article is also making the point that shouldn't we be concerned because eBay is being threatened both by big players like Amazon who are taking over all marketplaces but also by niche players like RealReal who are thinking over let's say the fashion marketplace. So how do they stay relevant, how do they stay competitive? How do they win this game?
Kai: My argument would be by doing what they are doing, by becoming the best possible version of who they already are. But it points to the bigger problem which is companies today are under enormous pressure, especially companies with a technology background, to grow exponentially it doesn't seem enough to just grow on a sustainable growth path which is the point that we were making earlier. The system puts pressure on individual players to go for relentless exponential innovation.
Sandra: And the public narrative also puts pressure on companies to have increasingly novel stories to tell about themselves. This is what we're doing now, this is the cutting edge innovation that we're bringing to the market, this is the new product or service which you haven't seen before which is completely revolutionising the way you used to think, this is the new disruptive innovation.
Kai: And so for the individual company to adopt a sustainable strategy is commendable and we've seen with some companies that they are doing this in a very holistic and strategic fashion but even companies like Patagonia who have been at the forefront of sustainable growth find that this can backfire.
Sandra: Patagonia is an outdoor gear company from California. They design clothing and other gear for climbing, for surfing, for skiing, for snowboarding. And they've been around since the 1970s. It's one of those companies that decided not to try to sell as much as they can. What's more in a very famous campaign back in 2011 on Black Friday, they took out a full page advertisement in The New York Times that said don't buy this jacket. It featured their latest fleece sweater and the company pretty much broke down the environmental costs of their new jacket and ask consumers really tried to think twice before buying it or any other product that they made. They said well recycle your old ones, sell it on eBay, give it the way to people who need it most and only if you really need to buy this new jacket.
Kai: So not only did they make the point that people shouldn't buy it for fashion reasons, they also said that most people who buy these jackets don't actually need them for functional reasons because they don't go to places where you would need that jacket. But more importantly Patagonia made a decision not to publicly list the company because the owners didn't want to lose control over the pace at which the company grows and try to limit that growth to around 3 percent. Now how did that work out Sandra?
Sandra: Well not too great because the campaign in 2011 around not buying the jacket actually was a huge success. So customers liked it and they started buying the jacket. Their sales grew significantly because people really liked the philosophy of the company. This was a company that for the first time wasn't saying that sustainability is going to be only around sourcing organic cotton or paying workers the right wages or making sure there's clean water involved in the production processes. But it's a company that took issue with consumerism itself. The problem wasn't that we weren't sourcing organic cotton was that we were using cotton to make things that people shouldn't be buying necessarily in the first place. So the philosophy was a success. The campaign was a success. And Patagonia saw its sales grow significantly. I think it's about 13/14 percent that they ended up with instead of a three to four percent.
Kai: So while some might argue that this was just a clever marketing ploy to sell more product we would argue that it actually shows that it's genuinely hard to be a sustainable business in a society that is predicated on growth and consumerism and so it just adds to the discussion we had in the first story.
Sandra: So maybe there is such a thing as good growth so a sustainable overall future where people do buy much fewer things maybe at higher prices and technology comes in to offset some of the impact that those products have on the world. And we end up living greater lives.
Kai: But it also suggests that companies should be allowed to be a bit boring.
Sandra: Yes not all important or good innovation is sexy and there is a real danger in glorifying only grand narratives and big companies and sexy platforms. It skews what we talk about, what we perceive as important or desirable, what we consume, where governments or indeed we invest our money or choose to devote our energy.
Kai: Which brings us to our third story which is also related. It's about platform businesses that grow exponentially, it's about Uber, it's about ride-share, but its about the sustainability aspect the argument that has been made that ridesharing will lead to a reduction in the number of cars, in the reduction of number of kilometres travelled and therefore in changes to the way in which we commute to work and ultimately in changes to cities itself. So the article that we're looking at is from Citylab and it's titled "When should commuters ditch transit for Uber" and it uses data from Washington D.C. that makes comparisons between commuting via the local metro or taking Uber rides.
Sandra: So much like in Australia the Metro in Washington D.C. can be a source of frustration. There's trackwork. There are unexpected delays for a number of things from weather to passengers getting sick to just random delays which makes it tempting for people to start using other types of transport such as Uber or Lyft. However that doesn't come without its costs. We have notorious traffic jams in Australia, so does Washington, they're road closures, there's roadworks, all sorts of accidents and other things so it is pretty unclear whether commuters are better off trying to take an Uber or better off trying to brave the public transport system.
Kai: So the Office showed that in many instances it is actually both cheaper and quicker to take an Uber instead of the public transport which on the one hand points to problems with the public transport system. But on the other hand we think makes a bit of a false argument.
Sandra: So the story coming out of the District of Columbia's Office of Revenue Analysis really says that Uber might be a more attractive option in a lot of the cases during the rush hour, it's a quicker option for trips around the city and so on it's a cheaper option. It comes out almost as good as the Metro rail. But is this always a valid argument?
Kai: It is a valid argument at the individual level. If it's just me who ditches public transport and goes for an Uber ride the data is valid and it works out for me because I might be quicker and it might be cheaper. But what if everyone on this commute were to switch from the train to the Uber. What would happen is surge pricing would kick in. It would be way more expensive than the study shows and you would probably be stuck in traffic because everyone is now sitting in an Uber car. Which brings us to the more systemic effects of what happens when Uber takes hold in a city. Does ridesharing actually result in less cars, less kilometres travel by car, and a decrease in emissions as has always been argued by the ride companies such as Lyft and Uber?
Sandra: So a lot of the confusion that we see around the effects of companies like Uber and whether or not cities are changing in the wake of this, stems from analysing the effects at the individual level and then aggregating to a population or aggregating to a society. A new working paper by a couple of UC Davis transportation researchers actually shows that if you look at the aggregate the likes of Uber and Lyft instead of removing cars and trips from the city are actually adding more and more trips to city and suburban streets and in many cases their effect on things like public transport is to actually cannibalise these systems.
Kai: So what happens is not so much that people get rid of their cars but that people are switching from public transport to Uber so that they are in fact ditching public transport and that as a result the number of kilometres travelled by car is actually increasing and the reduction in car ownership is marginal at best. Now if we look at the phenomenon we wouldn't actually expect a reduction in the number of kilometres travelled because everyone has to get to work anyway whether by Uber or with their own cars. At the same time many people do not get rid of their cars because you cannot do everything with Uber, especially not in the suburbs so people still keep their cars. So in fact we might be adding more cars because people are now buying Uber cars to engage in that line of work and we might also contribute to more emissions because the Uber cars that are not currently in use they might be cruising idly around suburbs or inner city areas looking for rides.
Sandra: But this is not to say that the idea of having ride-sharing is bad to begin with.
Kai: No but we have to actually implement a genuine version of ride-sharing, just the fact that someone else drives the car, you know take an Uber is just like taking a taxi doesn't actually get rid of kilometres driven as a whole and at a system level.
Sandra: However things like Uber pooling for instance do solve some of these issues so if we are willing to share that ride, let's say I go to work and on my way I pick up three or four other people who forego their own cars and share the ride with me, that would remove the cars on the road, would remove emissions and the number of kilometres that people undertake.
Kai: Absolutely my argument would be that this is the first time Uber is actually implementing the idea of ride sharing, so far they've just competed with taxis. They've just created a version of a taxi which is not a ride-share. Ride-sharing happens when multiple people share the Uber on their way to work. And then you have less kilometres travelled.
Sandra: And we also know that there are versions of ride-sharing that actually do work on these principles. So for instance in Europe BlaBlaCar allows you to share a ride with someone who is undertaking a longer trip on a certain route and they say well I'm travelling this way anyway would you like to share the costs, would you like to share the ride with me.
Sandra: Yes BlaBlaCar. If you're travelling between let's say Amsterdam and Paris, if you're a one blah person you want to share a quiet ride between these two cities. If you're a blah blah blah person and talk a lot of shit, you might want to travel with someone's mother in law and spend all that time chatting away.
Kai: So not only can you share a ride you can be matched to someone whose bla bla matches your bla bla.
Sandra: And yes of course you want to travel in the same direction and on the same day that I want to travel to. But that is true ride sharing.
Kai: So what we're saying is that the real effects from ride-sharing will come when these platforms are actually implementing ride-sharing and when the idea of pooling your ride with other passengers catches on. And then we have a true innovation in terms of ride-sharing that goes beyond what traditional taxis are offering. And that might actually reduce the number of cars on the street, the number of kilometres travelled, and the number of parking spots we need in our cities. And then gradually we might see changes in the built environment that matches those changes.
Sandra: And now...
Audio: Robot of the Week
Sandra: After two years of waiting for the world's first giant robot duel we actually have a winner.
Kai: American Megabots went up against Japanese Suidobashi and the Americans surprised the Japanese by sporting not one but two giant robots. So in the first round Iron Glory faced up against the Japanese Kuratas robot. It only lasted a few seconds and the Americans were beat. But then came the second round.
Audio: the age of giant fighting robots has arrived. Two teams, a world apart are about to do battle. It's time for the giant robot duel. That chainsaw is now activated. And we have a winner. Team Megabots Eagle Prime.
Sandra: If you want to see the whole video of drones flying, shots being fired, and punches being dropped, we'll include that in the shownotes. But congratulations to the Megabots team members for Eagle Prime's decisive victory.
Kai: And that is all we have time for today.
Sandra: Thanks for listening.
Kai: Thanks for listening.
Outro: This was The Future, This Week made awesome by the Sydney Business Insights team and members of the Digital Disruption Research Group. And every week right here with us our sound editor Megan Wedge who makes us sound good and keeps us honest. Our theme music was composed and played live from a set of garden hoses by Linsey Pollak. You can subscribe to this podcast on iTunes, Soundcloud, Stitcher or wherever you get your podcasts. You can follow us online on Flipboard, Twitter or sbi.sydney.edu.au. If you have any news that you want us to discuss, please send them to firstname.lastname@example.org.