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Hyper-scalable Business Logic -Recipes to H2H businessTatu Koljonen – EIT Digital Node Director Finland

Automation Summit, Västerås - September 3, 2015

NEXT BIG THING: SERVICE INDUSTRY BOOM

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(A) Agriculture:Value from

harvesting nature

(G) Goods:Value from

making products

(S) Services:Value from enhancing the

capabilities of things (customizing,

distributing, etc.) and interactions between things

Boom:

Digitalization of services!

New Business Logic

In search for business that scales (marginal return wrt. resources increases)

1. Services - do not scale

2. Products - scale according to logistics

3. Products + service - scale according to logistics

4. Digital services & products, hyper-scalable accordingto Metcalfe’s law

Characteristics of Hyper-scalable Business

”The winner takes it really all”

Revenues and profit order of magnitude more than in the traditional ”scalable” business (>10 M€ vs. >1M€/a/person)

Creations of global (natural) monopolies

Quicker rice and fall

A cult more than a war, a tribe more than subjects

Instigating the people, Heart-to-Heart business, Memes

Technology

Regulation and legal framework for digital economy still missing

Digital single market

Europe has Digital Agenda, but US

Companies dominate Digital

Economy

Role of IoT

I3, identity, interaction, inference

Internet of Things (IoT) is a set of products, services and processes that virtualizes the real-world things for digital processing.

Depending on the instance, the digital representation of the real world can be very simple or extremely complex, very local or globally orchestrated.

The sources of information can be anything from tags, sensors, embedded systems, existing databases to human agencies. An essential ingredient is scalable connectivity, locally and globally.

Recipies for Hyperscalable Business

What competition?

Winning the Metcalfe’s law on your side

Jobs and growth?

Global champions + strong local clusters of trust

Winning strategies?

Niche dominance + radical adjacency

Platform & ecosystem fight

Service dominant logic – gaining value from the usage

…

Market Adoption Readiness Levels (MARL)

TRL: traditional, relies only on maturity of technology.

"market adoption readiness levels“: fast changing and disruptive IoT environment needs the assessment of three major parameters:

users (adoption / feedback), business models, societal aspects

data (generated by the system and user interactions) and

the assessment of risk.

This cycle can be described as involving

an early "deployment"

followed by "engagement" of prospective users

leading to "test / feedback" of users – which if positive has a multiplying effect.

Continuous re-iterations of this cycle results in evolving to a tipping point scaling-up

Open innovation 2.0: Battle of global ecosystems + local clusters of trust

In the platform and ecosystem game winner takes it all – timing is critical

Industry Cloudy Fair Sunny

Automotive

Banking

Defense

Energy

Entertainment

Food and farming

Health care

Infrastructure

Insurance and asset management

IT Hardware

IT services and software

Media

Metals and mining

Pharmaceuticals

Property

Retailing

Telecoms

Travel and tourism

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Strategic Risksin Smart, Connected Products

1. Adding functionality that customers don’t want to pay for.

2. Underestimating security and privacy risks.

3. Failing to anticipate new competitive threats.

4. Waiting too long to get started.

5. Overestimating internal capabilities.

Source HBR.ORG

Fight for unicorns

Which country is the unicorn champ?

Cumulative value of European unicorns ($bn)

Trusted European ICT ecosystemBuilding on excellent partners

0

100

200

300

400

500

600

700

800

900

1000

2012 2013 2014 2015(planned)

# Students (total, cumulative)

Data Science

Digital Media Technology

Service Design & Engineering

Security & Privacy

Distributed Systems & Services (--> Cloud Computing andServices)

Internet Technology &Architectures

Embedded Systems

Human Computer Interaction &Design

0

20

40

60

80

100

120

140

160

2012 2013 2014 2015 (planned)

# Students (total, cumulative)

Eindhoven

Sophia-Antipolis

Trento

Stockholm

Rennes

Paris

Helsinki

Budapest

Breeding Entrepreneurial SkillsOur Schools deliver the talents needed to grow Europe

Growing CLCs sustain a vibrant ecosystem.

London (since 2014)

Trento (since 2012, expansions in 2013 and 2014)

Milan (since 2014)

Berlin (since 2011,

expanded in 2015)

Helsinki (move to

Open Innovation

House in 2012)

Stockholm (since 2010,

expanded in 2015)

Eindhoven (moved to new CLC

at High Tech Campus in 2014)

Paris (since 2010)

Budapest (since 2012)

Rennes (since 2012)

Sophia-Antipolis (since 2014)

Madrid (since 2013)

Munich(since 2013)

Europe’s Key Assets- The foundations for a new deal-making paradigm

26

Leading education system, especially in engineering and digital technologies

Recognized research institutions and corporates

High standard of living : a premium client base for new technologies

Excellent infrastructures (telecom, transport, electricity, …)

EU population : 503m, almost twice the American population (320m)

Cultural diversity : sources of creativity

The national differences (languages, regulations, …) represent a high barrier to

entry for non-EU companies

EU cannot challenge US investors model solely through equity financing

Agility and creativity across EU states will be key to succeed

Uberization of work

• Everybody can be a

• Taxi driver – Uber

• Hotel owner – AirB&B

• Journalist – uploading a cat video

• Middle class jobs disappear

• No lifelong employment, not even a payroll

New ways of distributing wealth

• How to turn the extreme productivity of some to

benefits for the others?

• What is the taxation system for sharing economy?

• Is the blockchain technology of cryptocurrencies the

building block for new fiscal innovation?

Conclusions (1/2)

• Digitalization is changing the way of doing business

• Hyper-scalable business logic

• Extreme wealth aggregation

• Fight for unicorns. Mostly consumer oriented.

• Digitalization is changing the future of Jobs

• Uberization of work: Uber, AirB&B

• No life long jobs / maybe even no payroll

• Digitalization is changing the ways of distributing

wealth

• Taxation in global digital economy, What is the

taxation system for the sharing economy?

Conclusions (2/2)

• EU role in developing digital skills

• Digital skills mandatory in primary and

secondary education

• Established life long digital learning as the

standard (also through exploiting digital

technology, MOOCs)

• EU role in stimulating digital entrepreneurship

• Fight for platforms and ecosystems

• Renew the EU Higher Education: Humboldt 2.0

• EU role in driving digital innovation

• Put more R&D resources behind Innovation

• hubs

• Create a true single Digital Market

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