Understanding Change – Second Half of the Chess Board

I was born in 1970, graduated in 1992 and started working with the IT industry in 1995. When I look back, my life can be seen as two distinct halves, analog and digital. The first 25 years seem to be from a different world, when compared with what followed in the next 25.

·       When I graduated, searching for a job meant, browsing through the newspaper for postings and you bought the weekly edition of Employment News.

·       Communication meant, inland letters, telegrams and waiting at the PCO after 9pm to make the STD call at 1/4th rate.

·       Shopping was a monthly chore, and you went to Commercial Street or Abids and hoped to find something nice that fits your budget.

·       Banking was a periodic activity, where you went to the branch and waited to withdraw sufficient money to cover your weekly expenses.

·       Music was your cassette player and if you wanted your own playlist, you went through the tedious chore of recording song after song at a friend’s place.

·       When a movie of your favourite actor released, you waited in the queue to advance book the tickets, sometimes weeks in advance.

·       Office was the only place you could work from, and Platforms were, where you boarded the train.

·       Posting pictures meant those Samantha Fox and Cindy Crawford posters in your bedroom.

·       My first PC in 1993, had a monochrome monitor, 40MB hard disk, 256KB RAM and back-up storage was 5-1/4th inch floppy disks

It amazes me when I consider the change over the last 25 years. Today, I shop at Amazon, listening to songs of my choice on Spotify, watch movies of my choice and at my convenience on Netflix, communicate instantly on WhatsApp, explore, and apply for jobs in a few clicks, work from anywhere and anytime, bank or pay or invest with an app, and I shoot and share pictures with friends and family instantly. All this happens while I am sitting in the comfort of my living room and most times, all I need is my smart phone, which is a few 1000X more powerful and capable than my first PC.

What actually happened?

·       All the activities, each of which were distinct and time consuming have converged and happen faster and cheaper, thanks to my smart phone.

·       Many activities from the old analog economy have moved to the digital reality, which in turn redefined the economics of the activities.

Looking beyond my lived experience, this has been a relent process of change over the past five decades, a combination of rapid progress in computing and communication, technological progress at a speed never experienced before by humans. The evolution and revolution of computing is a story that has no parallels in human history. The change in their scale, dominance and users have changed how we live fundamentally. Computers started out in 1940’s as specialized tools for scientists that were used by few hundred people worldwide to carry out complex calculations and today have ended being slightly less ubiquitous than clothing or food. Compare this with Automobiles: Their shape and design have remained more or less same over the past century, they are still manufactured in an assembly line, as in 1920’s, sold the same way and it still costs most people a few months of their earnings to buy them.

This begs a question. How should we understand this change?

Understanding Exponential Change

What I and many of you reading this have experienced is “Exponential Change”, which means that change is no longer linear but proceeds in an exponential manner leading to a paradigm shift and disruption. This exponential change was driven by technology, whose relentless march continues. For me, it all began with a few things that set-in motion, these forces of change. 

·       Commercial Internet was launched in India on August 15th, 1995

·       PCs started becoming ubiquitous. Thanks to Moore’s Law, my PC in 1995 had a colour monitor, 1GB hard disk and 256MB of RAM.

·       Mobiles phones were launched in 1996

For the next two and a half decades, a combination of low-cost computing aided by the ubiquitous presence of faster and cheaper communication networks and devices redefined my world. In an age of instantaneous communications, the networks evolved from carriers of information to aggregators of information and eventually to creators of something new.

We humans think linearly. We tend to extrapolate what happened in the past to the future and create a zone of comfort. Our most useful evolutionary adaptation has been our ability to create mental shortcuts to facilitate decision making when available information is incomplete or overwhelming. Through our evolution, we have experienced time linearly, and these mental shortcuts and quick thinking have ensured our survival.

Unfortunately change, especially technological change tends to be exponential. In what Ray Kurzweil terms as “Law of Accelerating Returns”, exponential technological change has been the norm over the past two centuries and the pace of change is accelerating. What happened in the last 25 years is the exponential advance of multiple supporting technologies that culminated in a mobility revolution. Technological evolution speeds up exponentially, because each following generation of technology builds on the earlier and the rate of progress accelerates as we move forward.

While the pace of change is obvious from airlines to games in attracting users faster, it is even more rapid and stark for digital platforms.

Second Half of the Chess Board

Many of us would have heard this story at some point in time, in some form.

“There was once a king in India who was a big chess enthusiast and had the habit of challenging wise visitors to a game of chess. One day a traveling sage was challenged by the king. The sage having played this game all his life all the time with people all over the world gladly accepted the Kings challenge. To motivate his opponent the king offered any reward that the sage could name. The sage modestly asked just for a few grains of rice in the following manner: the king was to put a single grain of rice on the first chess square and double it on every consequent one. The king accepted the sage’s request.

Having lost the game, the king ordered a bag of rice to be brought to the chess board. Then he started placing rice grains according to the arrangement: 1 grain on the first square, 2 on the second, 4 on the third, 8 on the fourth and so on. Following the exponential growth of the rice payment, the king quickly realized that he was unable to fulfil his promise because on the twentieth square the king would have had to put 1,000,000 grains of rice. On the fortieth square, the king would have had to put 1,000,000,000 grains of rice. And, finally, on the sixty-fourth square, the king would have had to put more than 18,000,000,000,000,000,000 grains of rice which is equal to about 210 billion tons and is allegedly sufficient to cover the whole territory of India with a meter thick layer of rice.”

We are all like the king. It is very difficult to grasp the nature of exponential growth and change, till it hits us. So, what does this analogy mean from a technology standpoint?

One of the best books I read recently is, “Where the Money is – Value Investing in the Digital Age” by Adam Seessel. While the book talks about investing in technology stocks and provides a framework to do that, he also points at developments to come. If the technological change of the past few decades has been aided by exponential growth in computing power, there is no reason to believe it will be any different going forward.

“It points to the vast possibilities inherent in the growth of computing power. Breakthrough innovations that currently lie beyond our investment horizon are fast approaching. Driverless cars, quantum computing, space colonization, practical applications of artificial intelligence, and augmented reality are only some of the developments that surely lie ahead. The compounding power of computing power guarantees it”.

It is beautifully illustrated and explained

“In the sixty-three years since the transistor was first introduced, computing power has become 275 billion times more powerful, which is a lot, but in the next two years alone, it will become 275 billion times more powerful again. Digital applications gained critical mass only in the last 10 or 15 years, and that’s no coincidence; that’s when we arrived at the second half of the chessboard. During the dot-com boom and subsequent bust, computing power wasn’t strong enough for Apple to produce the iPhone, but by 2007 it was. Only when we began to enter the second half of the chessboard could technology enable powerful mass-market consumer tech applications, which in turn enabled the tremendous wealth creation we’ve experienced over the last generation. Now that we’re on the second half of the chessboard, even more radical change and innovation seem inevitable.”

Laws of Exponential Change

There is no denying or escaping from technological progress. The nature of exponential change will only accelerate, and future will be faster than we can think – 2X. This can be concerting for many including me. Thinking linearly, for which we are wired clearly does not work. It blindsides us. But realising that does not make it any better. We cannot predict either with any useful accuracy, what is coming next. While we can be certain about technological change, the paths they would take through combination and intersection of various technologies and human ingenuity is inherently uncertain. It certainly would help if we understood certain laws that underlie this change:

Law of Accelerating Returns

Proposed by Ray Kurzweil, Law of Accelerating Returns suggests that technology imitates natural evolutionary systems and tends to progress in an exponential manner rather than a linear one. Newer and better technologies allow us to build and develop more sophisticated technologies faster. and more efficiently. What this means is that, as technologies improve at an accelerating pace, businesses and economies need to adapt faster. Our traditional methods of projecting technological growth linearly may significantly underestimate reality.

Amara’s Law

Roy Amara was an American scientist, futurist, and President of the Institute of the Future. He famously coined the adage:

“We tend to overestimate the effect of a technology in the short run and underestimate the effect in the long run.”

How true? We are seeing it all around us. There is excitement and exuberance about how AI, DeFi, Metaverse and other technologies would redefine our life soon. Unfortunately, this gives rise to a tunnel vision and the potential and impacts are hyped all over. In reality it takes time for the real impacts to show-up, but probably not in ways we can predict. Remember the excitement about internet during the dotcom boom? While the short-term euphoria ended badly, the real outcomes of the revolutionary medium evolved over the next couple of decades.

Moore’s Law

Probably the most famous law in computing, Moore's law is a term used to refer to the observation made by the late Gordon Moore in 1965 that the number of transistors in a dense integrated circuit doubles about every two years.

Over time, the details of Moore’s law were amended to better reflect actual growth of transistor density. The doubling interval was first increased to two years and then decreased to about eighteen months. The exponential nature of Moore’s law continued, however, creating decades of significant opportunity for the semiconductor industry.

With time, the semiconductors complexity increased, and this has led to slowing down of Moore’s law. The slowing of Moore’s law has prompted many to ask, “Is Moore’s law finally ending?”. No, while Moore’s law is still delivering exponential improvements, the results are being delivered at a slower pace. As the ability to scale a single chip slows, the semiconductor industry is finding other methods of innovation to maintain exponential growth. This new design trend is driven by systemic complexity. Some aspects of this new approach to design have been dubbed “more than Moore.” This term refers primarily to 2.5D and 3D integration techniques. We can expect to see semiconductor innovation continue into the foreseeable future.

Metcalfe’s Law

How often have you heard the term “Network Effects”? They typically account for 70% of the value of digital businesses. Network effects were popularised by Robert Metcalfe, one of the co-inventors of the Ethernet and a co-founder of 3Com.

“Metcalfe’s Law” says that a network’s value is proportional to the square of the number of nodes in the network. The end nodes can be computers, servers or simply users. For example, if a network has 10 nodes, its inherent value is 100 (10×10=100). Add one more node, and the value is 121. Add another and the value jumps to 144. Non-linear, exponential growth.

Network effects have become an essential component of a successful digital businesses, facilitated by the internet. As the cost of connecting more users became less expensive to their platforms, those able to attract them in mass become extremely valuable over time. Network effects facilitate scale and as platforms scale, they gain a competitive advantage, control more of a market and create a competitive advantage.

Kryder’s Law

Named after visionary Mark Kryder, CTO of Seagate Technologies, this law states that:

"The density of data on magnetic disks doubles annually." or to be precise "Storage capacity doubles every 13 months”.

This means our capacity to store data is expanding at an exponential pace. Kryder’s law assumes that disk-drive density will double every thirteen months. This law is often paired with Moore’s law, but it explores possibilities and potentials not in chips or transistors but in memory spaces and hard disks. Smaller but higher capacity drives are proliferating resulting in new products and applications.

What Next?

We as people, organizations and society move forward, what we need to be cognizant is the “Exponential Gap”, the gap that exists between how technologies evolve at an exponential pace, and our understanding, thinking, systems and adaptation that progresses linearly. It pays to be more open minded, take a broader view of developments around us and be prepared.

We cannot predict, but it would be safe to assume that the laws of exponential growth will stay the course in the near to medium term. These laws collectively underscore the rapidly evolving nature of technology and its potential for exponential growth and transformative impact.

What happens we try to predict? We are trying to make predictions about exponential change in the real world and our brains are not wired to understand both complexity and exponentiality. Over the past three decades that I have been associated with the technology industry, I have seen intelligent well-informed people pooh-pooh mobile phones (remember Steve Ballmer’s comments on iPhone?), the internet, social networks, online shopping and now electric vehicles, driverless cars and impacts of AI. Executives in established industries regularly ignore the development of new products and services driven by new technologies and grossly underestimate their impact. Ask the banks, who dismissed fintech’s, but lost their most profitable business of payments and transactions to them.

Don’t Predict, Be Prepared!