Looking back on my 2011 projections

Dec 1, 2011 20:52 UTC

By Don Tapscott
The opinions expressed are his own.

One thing pundits rarely do is review their own prognostications.  A year ago I published “10 big themes for 2011” – related to how the digital revolution changes business and society.  It’s helpful to review what actually occurred.  Below are my projections and some 20-20 hindsight editorializing.

1. “The crisis deepens. Rather than just an economic downturn, more people will recognize that we’re entering an era of profound change. The industrial economy and many of its institutions are reaching the end of their lifecycles — from newspapers and old models of financial services to our energy grid, transportation systems and institutions for global cooperation and problem solving.”

What happened? I think I called that one. A year ago many were saying that we had come out of the global slump and that we were in full recovery, even if it was a “jobless” one. I detest the term “jobless recovery” as an oxymoron. There is no recovery unless it’s inclusive. As the for global crisis, anyone want to debate with me that it’s getting deeper and that we need to rebuild most institutions and industries, like, say, government?

2. “We’ve entered a new period of Global Risks. We are moving into an age where profound threats are emerging to the global economy, society and even the very existence of humanity. Failure of the financial system, weapons of mass destruction, new communicable diseases, collapse of environmental systems, water security and many other threats make the world a volatile place. Leaders unite to build a Global Risk Response System.”

What happened? Possible overstatement. But consider the sovereign debt crisis, America losing its triple A rating, how the Japanese tsunami disrupted the global supply chain, the destabilization of (nuclear power) Pakistan, Iran’s steps towards nuclear weapons and the deepening crisis regarding Israel’s relationship with the Arab world — and a “Global Risk Response System” sounds like a good idea.

3. “Worldwide generational conflict will grow. Around the planet young adults are asserting themselves in the workplace and in political arenas. Protests against entrenched governments will increase in frequency and severity.”

What happened? Well I did call that one. It’s unbelievable to think that the Arab Spring, Occupy, student riots in London, millions of youth in the streets from Spain and around the world were not even on the radar a year ago. But all my work about the new generation told me that a conflagration was in the making. And this one is just beginning.

4. “Media upheaval will intensify. Newspapers will continue to collapse, replaced by networked news models.  The Huffington Post is just the beginning. More of the music consumer’s dollar will go into the pockets of artists and less to the music labels. The industry will awaken to the need to sell music as a service rather than a product.  TV will continue down the path of becoming simply another app on the web.”

What happened? There were very few newspaper bankruptcies and while cable television declined, TV is still alive and kicking.  The biggest development here was the impact of transparency on the Rupert Murdoch empire. The good news is that while the music industry continues to decline, new players with the right business model like Spotify have entered the US market and amazing networked models of the news are flourishing.

5. “There will be an upsurge in entrepreneurial activity. In the US and other countries unemployed knowledge workers, especially young people, will start their own businesses or work under personal services contracts. The internet enables small companies to have the capabilities of larger companies without the main liabilities.”

What happened? “Upsurge” was not the right word.  While it’s true that many young people are being forced to be entrepreneurs by high youth unemployment, they are having difficulty getting financing due to the lingering sub-prime meltdown hangover.  Because 80 percent of new jobs come from companies 5 years old or less, the failure of the banks and venture capital to provide financing is a chronic problem.

6. “The ‘app revolution’ peaks showing signs of decline. Developers, faced with so many platform choices and limitations of proprietary apps start to look to HTML5 for mobile web development. Rather than writing applications to run on separate mobile operating systems, developers will return to the uniformity of web sites accessed through browsers.”

What Happened? It may have peaked but there are no signs of decline yet. But with open platforms like Android eclipsing the iconic iPhone, a turn to the web can’t be far away.

7. “The Age of Hyper Transparency becomes clear. Right now it’s the US government, but Wikileaks founder Julian Assange says private-sector companies are next, starting with the financial services industry. So if your corporation is going to be naked – and you really have no choice in the matter – you’d better be buff.”

What happened? Wikileaks backed off denuding private companies. I’m not sure why because there sure is lots of extreme dirt to expose. But transparency has now become part of the public dialogue. A small indication: TED Global has themed its annual event for June 2012 “Radical Openness.”

8. “There will be a social media privacy backlash. With the meteoric rise of social media, we are increasingly willing accomplices in undermining our own privacy rights. Privacy is the Achilles Heel of sites such as Facebook.”

What happened? Concerns about privacy did explode this year and every social network and many businesses are dazed and confused. Some left Facebook for this reason to Google+ and more privacy-friendly platforms. In a shocking ruling yesterday the FTC came down hard on Facebook, forcing them to redesign their system and procedures to protect the privacy of their users. Given that bad privacy policies is Facebook’s Achilles Heel, the FTC may have unwittingly saved the company.

9. “The battle over net neutrality will explode. Internet Service Providers will continue their campaign to charge premium prices for certain kinds of content, while content providers will want all Internet traffic treated fairly. The biggest confrontations will be in the wireless realm.”

What happened? Not a lot.  The term gets over 5 million hits on Google. But Lady Gaga gets 400 million. Champions like Google and Tim Berners Lee have had some success. Given the Obama administration’s stated support for net neutrality and an open Internet, no explosion occurred because the providers are lying low.

10. “Two technologies – Enterprise Collaboration and Geospaciality come of age. Foursquare was just the beginning. Get out your Google goggles and Layar Reality Browser and augment your reality.  The physical and digital worlds are converging. Companies finally begin to move beyond electronic mail, document management and other primitive technologies to new collaborative Suites like Jive and Spaces.”

What happened? Geospaciality continues to grow with mapping and navigation systems on hundreds of millions of mobile devices.  But true augmented reality tools like Goggles and Layar are not yet exactly household words.

Looking back it appears I hit eight out of ten. But what did I miss? You tell me!

Don Tapscott is the author of 14 books, including (with Anthony D. Williams) MacroWikinomics: Rebooting Business and the World. He is an Adjunct Professor at the Rotman School of Management, University of Toronto. Twitter: @dtapscott.

PHOTO: South Korean fortuneteller Kim Yong-son poses with his crystal ball in his Seoul office. REUTERS/Lee Jae-won

Cutting out the banker middleman

Nov 16, 2011 19:57 UTC

By Don Tapscott
The views expressed are his own.

In the wake of the 2008 global financial crisis, we need to rethink and redesign many organizations and institutions that have previously served us well but are now beginning to falter. Fortunately, the Internet lets us do this. It slashes collaboration costs and makes possible completely new models of combining people, skills, knowledge and capital for economic and social development. Around the world, individuals and groups are working together, developing new businesses based on peer-to-peer (P2P) collaborative networks.

The financial services industry has always been the antithesis of P2P collaboration. Hierarchy is deeply entrenched in this industry, for good reasons such as security, auditing, and regulatory compliance. But we are now seeing the rise of three types of P2P activities in this sector.

First, financial services companies are moving beyond electronic mail, document management and other primitive technologies to new collaborative software suites like Jive and Moxie Software Spaces, which encourage P2P collaboration within corporate boundaries.

Second, financial services companies themselves are beginning to act as peers, and are collaborating rather than treating one another as superiors or subordinates in the supply chain. This is good. The industry needs a new modus operandi, where all of the key players (including banks, insurers, investment brokers, rating agencies and regulators) embrace principles of transparency, integrity, collaboration and sharing of information. For example, banks should open up financial modeling and make pertinent assumptions and data transparent to all interested parties. Among other things, such P2P collaborations could enable banks to value the trillions of dollars in toxic assets that are weighing down their balance sheets.

But the third and most interesting of P2P innovations in financial services is the growing number of lenders and borrowers connecting directly via the Internet and avoiding the cost and frustration of dealing with banks altogether. The goal is to benefit both the lender and the borrower. For example, if one person is now receiving one percent interest on a savings account and another is paying 29% on a credit card, a mutually-agreed 10% rate is a match made in heaven, giving the lender a tenfold increase in return while affording the borrower a chance to begin paying down the principal.  Typical P2P borrowers want to consolidate debts and pay off credit cards.

Initial attempts at Internet-enabled loans banks were a disaster. From 2005 (when P2P lending launched in the U.S.) till 2009, P2P startups experienced a boom and then went bust, culminating with regulators shutting them all down. Many investors were burned. In the case of one company, Prosper.com, angry investors launched a class-action lawsuit.

After the initial debacle, two of the main U.S. services, Prosper and LendingClub.com, registered their platforms with the SEC in 2009 and 2008 respectively. Both overhauled their business models, with the stated goal of offering greater protection to the lender. They publish online their detailed financial performance figures, which are monitored by third-party sites such as www.LendStats.com.

In the past two years the growth of P2P lending companies has been dramatic, with 15 percent month-over-month growth rates, and lenders receiving 8 – 10 percent returns. With these numbers, it’s no surprise that some of the biggest venture capital firms, such as Union Square, Draper Fisher Jurvetson, and Google Ventures are moving into the industry.

Both Prosper and LendingClub subject would-be borrowers to rigorous scrutiny. Deadbeats are not welcome. Prosper rejects 80 percent of loan applicants; LendingClub’s rejection rate is 90 percent.

According to estimates by analysis group Gartner Inc., the value of outstanding loans transacted P2P will grow to $5 billion in 2013.  Although that’s still a paltry amount compared to the Wall Street titans, the P2P model strikes at the core of the banking industry.

There are already more than 35 social-banking companies in more than 20 countries. Prosper in the U.S., Community Lend in Canada, Smava in Germany and Qifang in China have similar models. Today the U.K. and U.S. social-banking market has outstanding loans of $700 million.

What these P2P networks do that banks can’t (or won’t) is let people align their investments with individuals or causes that they believe in. Prosper accepts investments of as little as $25 and estimates its returns to be from 6% to 16%. Borrowers can post their personal stories, endorsements from friends, and group affiliations, in an effort to win the hearts, minds and dollars of potential lenders. It’s easy to see why a growing number of consumers feel this is better than putting their money in a bank and watching it being gobbled away in fees.

Is this the beginning of an outright social movement? P2P lending will certainly not displace the retail lending divisions of the big banks anytime soon. That said, well-regulated social banking clearly offers many advantages, in developed markets as well as rising economies. If some of the early hurdles can be ironed out, the phenomenon has a promising future. The sheer growth of the sector has certainly chipped away at the skepticism surrounding it and reinforced the viability of a more cost-effective way for lending.

Banks should find ways to embrace these new models rather than fighting them. Experience shows that such industry disrupters can hurt those who ignore or resist them.

PHOTO: An employee of the Korea Exchange Bank counts money next to stacks of one hundred U.S. dollar banknotes at the bank’s headquarters in Seoul, August 11, 2011. REUTERS/Jo Yong-Hak


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Three principles for a new Wall Street

Oct 19, 2011 14:51 UTC

By Don Tapscott
The view expressed here are his own.

Protesters set up the “Occupy Wall Street” base camp in New York a month ago because the location epitomizes the economic forces that control the U.S. and global economies. As one sign read: “This is not a recession. It’s a robbery.” To many it feels like just that. The financial services industry is in desperate need of reform. Many bankers have behaved as secretive corporate titans serving only their own interests, and insist the devastating consequences are not their fault. They are failing to fulfill their obligations to society—in some cases, even to shareholders–and a growing number of critics view the day-to-day behavior of the financial services industry as unacceptable. If the industry doesn’t initiate reform from within then it will eventually have more extreme reform imposed from outside.

In 2008, the routine gambles of Wall Street almost brought down global capitalism and yet, so far, nothing fundamentally has changed. Restoring long-term confidence in the financial services industry requires more than individual banks changing their behavior or even governments intervening with new rules. The industry needs a new modus operandi, where all of the key players (banks, insurers, investment brokers, rating agencies and regulators) adopt the three facets of collaboration: integrity, transparency, and embracing the commons.

Integrity. Trust is the expectation that the other party will act with integrity – be honest, considerate, and abide by its commitments. To re-establish trust, the financial services industry needs to have integrity as part of its DNA. But the cavalier manner in which many banking executives violated integrity was stunning. For example they sold sub-prime mortgages to people who could never make the payments; bundled them into securities and convinced rating agencies to classify them as AAA, and insurance companies to insure them.  They then sold these to unsuspecting investors. They violated all the values of Integrity. Everyone in the process suffered and the global economy was sent into a tailspin.

The 2008 meltdown and the Euro crises we face today illustrate how interconnected our world has become. Organizations must be much more aware of what is going on around them. It’s important to know the behavior of others and the potential impacts of the actions of distant third parties. If there is anything Wall Street should have learned from the mess they created it was that business cannot succeed in a world that is failing.

In everything from motivating employees, negotiating with partners, disclosing financial information, or explaining the environmental impacts of a new factory, companies and other organizations must tell the truth, be considerate of the interests of others, and be willing to be held accountable for delivering against their commitments.

Companies need to act with integrity – not just to secure a healthy business environment, but for their own sustainability and competitive advantage.  Increasingly, firms that exhibit ethical values and candor have discovered that they can build trust with customers, employees, shareholders and business partners. This makes them more competitive and profitable.

Transparency. One of the reasons companies have to have integrity is that they operate in an unprecedented, hyper-transparent world. Customers use the Internet to help evaluate the true worth of products. Employees share formerly secret information about corporate strategy, management and challenges. To collaborate effectively, companies share intimate knowledge with one another. And in a world of instant communications, whistleblowers, inquisitive media, and Google, citizens and communities routinely put firms under the microscope. So if corporations are going to be naked – and they really have no choice in the matter – they had better be buff.

But the financial services industry has a history of being opaque and secretive. One Goldman Sachs executive told me off the record: “We’re a very private company. The less people know about us and pay attention to us, the better.” In commenting on the U.S. government fraud charges against Goldman, Roger Martin, dean of the Rotman School of Management at the University of Toronto said, “Sadly for Goldman, transparency is not an attractive option. The better Goldman does in explaining exactly what its business is, the more outraged regulators and the public will be.”

If Wall Street had been fully transparent during the past decade, the sub-prime debacle would not have occurred. In the future, investors, rating agencies and insurance companies should be able to ‘fly over’ and ‘drill down’ into securities such as Collateralized Debt Obligations and analyse the underlying assets. With full data, they could readily assess the payment history, and correlate information such as employment histories, property values, location, neighborhood pricings, delinquency patterns, and so on. Potential investors will quickly realize the CDOs’ junk status and refuse to buy. Since banks wouldn’t be able to offload sub-prime mortgages, they wouldn’t create them in the first place. The industry needs to resolve, immediately, that it understands that sunlight is the best disinfectant.

Embracing the Commons. Wall Street reform requires restructuring of the industry. Wall Street companies need to overcome their obsession with proprietary ownership of their intellectual property and learn to share certain information. For example, the banks currently have upwards of a trillion dollars of “toxic assets” on their balance sheets. Since no one knows the true value, the assets have created so-called “zombie banks” that won’t lend money to entrepreneurs. Because 80 percent of new jobs come from companies 5-years-old or less, the inability of startups to borrow money is a huge impediment to job creation.

How can the banks value these assets, dispose of them and get back to normal? They should be sharing the information – essentially placing risk management in a commons. Think risk management Linux style, which is completely feasible and affordable in a digitized world. For instance, the Open Models Valuation Company is using the web to create a global community of experts dedicated to establishing credible valuation and risk assessments for credit securities and contracts such as CDOs and other derivatives.

Craig Heimark, an industry veteran and one of the founders of Open Models, likens it to the scientific peer-review process: “In the scientific world when people publish something, they don’t just publish their results, but also the steps in the process, their methods and assumptions so that they can be vetted by others.”

Exposing complex financial instruments to the vetting of thousands of experts could help restore trust in banks, kick-start venture capital, unfreeze the paralysis of lending markets and lay the foundation for a new and stronger financial service industry.

The paramount role of banks is not to create shareholder value and enrich their executives. They exist to provide a safe place for people and organizations to store their money and get credit. They exist to execute myriad transactions, make capital markets and are central to our economy. We charter them with a license to operate so that they can perform these functions, but the recent repeated crises show they have violated their pact with society.

One of the most popular signs in the Occupy movement is “Nationalize the Banks.” If Wall Street does not adopt these three principles and change its core modus operandi, it risks having its license revoked.

PHOTO: A bronze sculpture of the New York Stock Exchange Bull is seen at the Museum of American Finance in New York October 2, 2008. REUTERS/Shannon Stapleton