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When Incumbents Downplay Disruption…

An unmanned car driven by a search engine company? We’ve seen that movie. It ends with robots harvesting our bodies for energy.

That is a line from a 2011 Chrysler car commercial mocking Google’s self-driving car project.

Another Chrysler commercial was even blunter: “Robots can take our food, our clothes and our homes. But, they will never take our cars.”

Chrysler’s early mocking of Google’s efforts exemplifies the fact that few cling to the status quo tighter than the companies that best understand it and have the most stake in preserving it. It is human nature to value what one does well and look askance at innovations that challenge the assumptions underlying current success. Sprinkle in some predictably irrational wishful thinking and you have the mindset that too quickly dismisses potentially dangerous disruptions.

Ironically, seven years later, those Google “robots” are now mostly driving Chrysler Pacifica minivans. Those robots have taken Chrysler’s cars and driven more than 10 million miles. Chrysler benefits by selling cars to Waymo, the spinoff from that Google project, but not nearly as much as it might have from building the robots themselves. Waymo is valued at $175 billion, about five times Chrysler’s market value.

History brims with other examples.

When Alexander Graham Bell offered to sell his telephone patents to Western Union, the committee evaluating the deal concluded:

Messrs. Hubbard and Bell want to install one of their ‘telephone devices’ in every city. The idea is idiotic on the face of it… This device is inherently of no use to us. We do not recommend its purchase.

Ken Olsen, who disrupted IBM’s mainframe dominance with his DEC minicomputers, mocked the usefulness of personal computers in their early days. He declared, “The personal computer will fall flat on its face in business.” Olsen was very wrong, and DEC would eventually be sold to Compaq Computer, a personal computer maker, for a fraction of its peak value.

See also: Why AI IS All It’s Cracked Up to Be  

Steve Ballmer’s initial ridicule of Apple’s iPhone is also legendary, though the words of the then-CEO of Microsoft were mild compared with the disdain on his face when asked to comment on the iPhone launch.

Years later, after he retired, Ballmer insisted that he was right about the iPhone in the context of mobile phones at the time. What he missed, he admitted, was that the strict separation of hardware, operating system and applications that drove Microsoft’s success in PCs wasn’t going to reproduce itself on mobile phones. Ballmer also didn’t recognize the power of the business model innovation that allowed the iPhone’s high cost to be built into monthly cell phone bills and to be subsidized by mobile operators. (Jump to the 4:00 mark.)

The biggest challenge for successful business executives—like Ballmer, Olsen and those at Western Union—when confronted with potentially disruptive innovations is to think deeply about potential strategic shifts, rather than simply mock innovations for violating current assumptions.

Another perhaps soon-to-be classic example is unfolding at State Farm Insurance.

State Farm released an TV ad that is a thinly veiled attack on Lemonade, a well-funded insurtech startup. Lemonade makes wide use of AI-based chatbots for customer service. State Farm, instead, prides itself on its host of human agents. In the ad, a State Farm agent says:

The budget insurance companies are building these cheap, knockoff robots to compete with us… These bots don’t have the compassion of a real State Farm agent.

As I’ve previously written, AI is one of six information technology trends that is reshaping every information-intensive industry, including insurance. In fact, as I recently told a group of insurance executives, I believe insurance will probably change more in the next 10 to 15 years than it has in the last 300.

See also: Lemonade Really Does Have a Big Heart  

That doesn’t mean that Lemonade’s use of chatbots for customer service will destroy State Farm. But, as State Farm should know, customer-service chatbots are only one of numerous innovations that Lemonade is bringing to the game. As several McKinsey consultants point out, AI-related technologies are driving “seismic tech-driven shifts” in a number of different aspects of insurance. Lemonade has also adopted a mobile-first strategy and is applying behavioral economics to drive other business model innovations.

State Farm executives need to get beyond the mocking and think deeply about how emerging innovations might disrupt their strategic assumptions.

One way to do so is being offered at InsuranceThoughtLeadership.com, where ITL editor-in-chief and industry thought leader Paul Carroll has offered a “State Farm Lemonade Throw Down.” Carroll offers to host an online debate between the two firms’ CEOs about how quickly AI technology should be integrated into interactions with customers.

Lemonade’s CEO, Daniel Schreiber, has accepted. I hope Michael Tipsord, State Farm’s CEO, will accept, as well.

Better for Mr. Tipsord to face the question now, while there is ample time to still out-innovate Lemonade and other startups, than to be left to reflect on what went wrong years later, as Steve Ballmer had to do with the iPhone.

Are Insurers Ready for Voice Search?

Who do property and casualty insurance customers turn to when they need help?

In the past, answers have included insurance agents, customer helplines and company websites. Today, however, customers are increasingly likely to consult Alexa, Siri or Cortana.

As voice assistants gain popularity in homes, in cars and on smartphones, they’re also gaining traction as a marketing tool. Here, we look at the ways in which insurance companies are using voice assistants as part of their marketing and sales strategy, as well as what to expect in the near future.

How Voice Assistants Are Changing Marketing

Voice assistants commonly come in one of two forms: wireless speakers that can be placed in the home or office, or as built-in tools on smartphones. iPhones and various Android devices have had them for a few years now.

In some ways, voice assistants work similarly to visual or text-based tools like smartphone apps and Google search bars. The user asks a question or enters a command, and the device responds to it. Voice assistants like Alexa even offer apps, or “skills,” that work similarly to smartphone apps — except they rely on audio rather than visuals to share information, TechCrunch’s Sarah Perez writes.

The audio-based approach changes the ways in which both search results and apps work on voice assistant devices. A text-based Google search, for instance, returns a list of links from which the user can choose. A voice-based search, however, tends to return the single response the AI thinks best fits the user’s query.

Some experts praise this option for its speed and flexibility. “Since voice flattens menus, it will make daily tasks far easier to complete,” Jelli CEO Mike Dougherty says. Yet it also puts additional pressure on marketing teams to ensure that their content gets chosen by the various search engines that inform each voice-based device, says Richard Yao, senior associate of strategy and content at IPG Media Lab.

Voice assistants haven’t just changed how search results are presented. They have also changed how users launch searches in the first place, says More Visibility’s Jill Goldstein. While text-based searches tend to focus on two or three keywords, voice-based searches use full, natural-language sentences. These often start with question words like “what,” “how” or “when.”

See also: Insurtech Starts With ‘I’ but Needs ‘We’  

These questions give marketers insight into where shoppers are in their buying journey and how best to meet their needs — but only if marketing teams are collecting and using this information, says Tyler Riddell, vice president of marketing for eSUB Construction Software.

Not only are marketing teams learning to adapt to the differences between audio and visual, but they’re also learning how to adapt to a search tool that adapts itself.

Because voice assistants use artificial intelligence and machine learning, they can adapt to changes in search terms, says Gartner analyst Ranjit Atwal. The onboard AI is designed to learn over time, gaining a better sense of how users frame their queries and the sort of information they may be looking for.

‘Alexa, Find Me Auto Insurance’: The Rising Demand for Voice Search

Based on recent sales trends, 55% of U.S. households are expected to have a smart home speaker, with voice assistance enabled, in their houses by the end of 2019, Dara Treseder at Adweek reports. Voice assistants are also a mainstay of many smartphones, from Apple’s Siri to Google’s voice search option triggered by saying, “OK, Google.”

Insurance customers increasingly prefer to include digital channels in their search for property and casualty insurance. With voice assistants occupying millions of smartphones and a wide range of other devices, customers increasingly prefer to rely on these tools, as well.

Nearly half (46%) of insurance customers already use voice search tools at least once per day, according to Shane Closser at Property Casualty 360. One in four want their voice assistants to be able to give them more information on insurance agents and products. One in three wanted to use voice assistants to book appointments with a particular insurance agent.

Service-based companies that offer “highly complex and highly personal” services are uniquely suited to thrive in the voice search era, says Adweek’s Julia Stead. While Stead focuses on travel, finance and healthcare, her analysis applies to P&C insurers, as well, because these companies also offer services that have long been accessed via voice (phone), are tailored to the needs of each customer and often require access at odd locations or hours.

And while the conversation about tech innovation often focuses on younger users, voice assistants are increasingly popular with older insurance customers.

See also: Future of Insurance Looks Very Different  

Lauryn Chamberlain at GeoMarketing.com says that 37% of consumers age 50 and older say they use a voice assistant, often because simply speaking to a smart speaker or phone is easier than tapping, swiping or reducing a question to its key search terms. In other words, older users can think of their voice assistants as a helpful background entity rather than as a device.

In short, voice assistants are cutting across demographics. They’re entering more homes and workspaces. And insurance customers want to use them to secure coverage.

How P&C Insurers Are Incorporating Voice Into Their Marketing

Several insurance companies are already experimenting with voice assistant tools as part of their own marketing process, according to Danni Santana at Digital Insurance. For instance, Nationwide, Liberty Mutual (and subsidiary SafeCo) and Farmers have all launched Amazon Echo Skills.

Progressive, meanwhile, joined Google Home in March 2017, the first insurance carrier to do so, according to Rachel Brown at Mobile Marketer.

Other insurance companies have experimented with different approaches. Amica Mutual Insurance, for example, launched an Alexa skill that doesn’t connect users to their individual accounts. Rather, it offers information in more than a dozen categories to help users better understand billing, discounts, storm preparation and more.

With the development of Alexa skills and similar tools, brands are thinking about how a voice assistant’s sound affects their brand development, says Jennifer Harvey, VP of branding and communications at Bynder. The choice of voice tone, pitch and speed can all send a powerful message about an insurer’s brand and culture, whether it’s reassuring, serious, cheerful or anything in between.

One of the big opportunities for insurance companies and voice assistants is access. Currently, voice assistants can take on many simple tasks but can’t always handle a transaction as complex as ensuring a customer receives the right home or auto coverage for their needs. Yet developments in AI and voice recognition indicate this may change. “Alexa is already capable of placing a complicated pizza order,” says Inbal Lavi, CEO of Webpals Group, “underscoring that voice assistants will act as more than middlemen.”

For now, however, even the digital middleman approach can benefit potential and current P&C insurance customers and the companies that serve them. “We want to enable easy access for our customers,” says Alexander Bernert, head of brand management at Zurich Insurance. “Consumers do not necessarily think of taking out disability insurance between 9 am and 5 pm, but maybe even shortly before midnight.”

It can be tough to reach an insurance agent shortly before midnight. But a voice assistant can find one, provide information and even schedule an appointment — making it easier for potential customers to turn into actual purchasers.

In a world where insurance customers already do research and contact insurers via multiple channels, voice assistants are a natural frontier for insurance marketing.

Lemonade Really Does Have a Big Heart

Twelve months ago, Lemonade opened for business. For me, it marked the start of a new chapter in the history of the insurance industry. To coincide with their launch, I posted this article after speaking with CEO and co-founder Daniel Schreiber. The headline was “insurance will never be the same again!”

Of course, it was easy for me to make such a grand pronouncement 12 months ago, on the day that Lemonade hit the street. At that time, they had no customers, had not written any insurance and had certainly never paid a claim.

One year on, and Lemonade is up and running. Was I right to say insurance would never be the same again? I caught up with Daniel again to find out!

Disruptive Innovation

First things first, let me set some context. A question I get asked a lot by insurers and industry folk is, “why should we be interested in what Lemonade are doing?” It’s a great question and exactly what they should be asking. (I also point out that they need to be really interested in what ZhongAn is doing, as well).

To massively over-simplify and paraphrase Clayton Christensen, Lemonade has brought simplicity, convenience and affordability to a marketplace where the existing offering is complicated, expensive and inaccessible.

This is why the incumbent insurers need to take note when Lemonade pays a claim in three seconds. Otherwise, they could end up like DEC. Once the market leaders in minicomputers, DEC dismissed the rise of PCs, only to watch helplessly as IBM and Apple ate their lunch with personal computers.

Or Kodak, the inventor of digital photography. The company was too wedded to an outdated business model that relied on people printing their photos. That was until it was too late, and Kodak went from being the world’s fourth largest brand to bankrupt in less than two decades!

Now, it might have taken about 15 years for the demise of Kodak and about 10 for DEC to wake up and smell the coffee. The point being that disruptive innovations don’t take hold overnight; they need time to gain traction and build momentum.

But in this digital age, this speed of change is increasing. This is the key characteristic in the World Economic Forum’s definition of the 4th Industrial Revolution. It took Google just five years to hit a $1 billion in revenues. And Amazon only four!

Just think about this for a second. A decade ago, we didn’t have the iPhone, the iPad, Kindle, Uber, AirBnB, Android, Spotify, Instagram, WhatsApp, 4G. Could you imagine life without these now? Could you conceive that insurance is going to change and for the better?

You trust me, and I will trust you

There is another reason why incumbent insurers should be watching Lemonade very closely. It has addressed the fundamental issue with insurance and customer perception, which is trust, behavior and the conflict of interest.

There’s a ton of research and data that shows customers don’t trust insurers. And for good reason.

Insurers make the product complicated by using fancy jargon that Joe and Josephine Bloggs can’t understand. Insurers get paid up front and then create hurdles and barriers when the customer rightfully asks the insurer to do what they’ve already paid them to do.

And worse, the customer has to prove they are not a liar to the insurer’s satisfaction before a penny is paid out.

“Insurance fraud has become a self-fulfilling prophecy for incumbent insurers,” Daniel said. “They don’t trust customers to be fair and honest. This drives their behavior toward customers. And guess what, customers respond accordingly. Which justifies the insurer’s behavior in the first place. It’s a vicious circle that neither side can break.”

See also: Lemonade’s New Push: Zero Everything  

Lemonade’s virtuous circle

This conflict of interest doesn’t exist in the Lemonade business model. By operating as a tech platform that is also an insurance carrier, Lemonade has separated cost of operations from the pool of risk capital. It has also raised the bar when it comes to total cost of operations at 20% GWP.

Lemonade don’t profit from non-payment of a claim (in the way an incumbent insurer does). The company starts by trusting customers to make honest claims. Which is why Lemonade pays out straight away, with around a third of claim payouts fully automated. No human intervention at all.

Lemonade accepts that there are a few bad apples but works on the premise that most of us are fundamentally decent people.

It is usually at this point that the diehards and old laggards of the insurance industry start throwing fraud and loss data at me. Citing decades of data that proves Lemonade will eventually crash and burn under the weight of inflated and illegal claims.

My response is always the same “hands up everyone who is a bad person.” Of course, no hands go up because the vast majority of us are decent, respectful, honest people.

Which is why Lemonade has now had six, yes ,SIX, customers who have handed claims payouts back.

Just think about this for a moment.

A customer makes a claim (in seconds), gets paid (immediately), finds the situation has changed (later), realizes he got paid too much (oops!), then gives the payment back (you kidding me?).

Could the customer’s behavior be directly related to Lemonade’s behavior?

Yes, certainly! You only have to look at customer behavior at Grameen Bank in Bangladesh to see that trust can be relied  upon. Here, unsecured personal loans are repaid on time without the need for credit scores and debt collection agencies.

You don’t have to take my word for it, either. Hot out of the oven is this video of Lemonade customers in New York.

So, what’s the story, one year on?

Lemonade has been true to its word on the subject of transparency.

Throughout the year, the company has published its numbers, warts and all, for everyone to see. Building and maintaining trust is fundamental to Lemonade’s business model, and this starts with being open and honest.

Daniel has shared with me the latest numbers, and they are very impressive. I won’t repeat them here, because I know the team will be posting them all shortly in the latest Transparency Chronicles. They’re proud of the numbers, and rightly so.

See also: Lemonade: World’s First Live Policy  

All I will say is that Daniel and the team have steered a considered and thoughtful course in their first year. They could have chased the numbers, as many first year startups would do, only to regret the quality of business they end up with.

But Lemonade’s team has stuck to their knitting, have impressive growth numbers, a quality customer base completely aligned to the brand and are now licensed in 18 states (with more to follow).

Our job has only just started,” Daniel said. “Over the next year, we will continue to make insurance easier and better for our customers. One area we’ve started to look at now is the underlying insurance language and the products that form the heart of all insurance.”

Are you surprised?

You shouldn’t be! Lemonade is a highly professional startup and will no doubt become the definitive case study for exactly how “it” should be done.

But has this surprised Daniel?

“There are two things that have surprised us this year,” Daniel told me. “First, the extent of the warm reception we’ve received across the industry and from customers. We hoped customers would like us, but we never took for it granted.

“After all, you can’t beta test a new insurance company. The MVP (minimally viable product) approach simply doesn’t apply to insurance. It’s regulated and has to be the real deal from the get-go, right first time. So, for us, having customers put their faith in Lemonade from Day One has been very satisfying.

“The second is that our faith in humanity and behavioral economics has been affirmed. There will always be people who want to game the system, but on the whole, all our expectations about customer behavior have been exceeded.

“Who would have thought we would have six customers who gave their claim payouts back. That is very gratifying and also humbling for us. And gives us encouragement to continue doing what we are doing.”

Lemonade is live; insurance will never be the same again!

For me, I’m convinced. Historians will look back to Sept. 21, 2016, the day that Lemonade opened for business, as a watershed for the insurance industry.

Which means, of course, that the key question now is, who among the incumbent insurers will provide the Kodak moment? The one who simply missed that the world had changed until it was too late.

How to Move to the Post-Digital Age?

We are in the midst of the shift from the information age to the digital age, which is realigning fundamental elements of business that require major adjustments to thrive, let alone survive.

As we noted in our new report, Greenfields, Startups and InsurTech: Accelerating Digital Age Business Modelsnew greenfield and startup competitors are rising from within and outside of every industry, including insurance, to capture the post-digital age business opportunities of the next generation of buyers. By shifting to meet the forces of change, these companies are positioning themselves to be the market leaders in the post-digital age. Those that do not make the shift risk not only the loss of customers but also market share and relevance in the coming new age of insurance.

See also: 6 Charts on Startups, Greenfields, Incubators  

Sometimes, the next big thing isn’t easy to spot. The disruption of the insurance industry is in the early days, so predictions are difficult. Will the new greenfields and startups become the next market leaders? If history is a guide, the answer is yes … some will. Just consider Progressive and how many dismissed it early on. Now it is a top 10 insurer in the U.S. Or consider what has happened in other industries with companies that are defunct because they missed the shift:

  • Streaming video: Blockbuster failed to see this trend. It filed for bankruptcy in 2010 and Netflix is now worth more than $61 billion.
  • Mobile games: In 2011, the president of Nintendo North America suggested that mobile game apps were disposable from a consumer perspective. Today, Pokemon Go has 65 million users. Is that disposable?
  • Apple iPhone: Former Microsoft CEO Steve Ballmer reportedly commented that the first Apple iPhone would not appeal to business customers because it did not have a keyboard and would not be a good email machine. Apple iPhone single-handedly disrupted and redefined multiple industries and continues to do so.
  • Autonomous vehicles: In 2015, Jaguar’s head of R&D stated that autonomous vehicles didn’t consider customers’ cargo. Since then, Jaguar Land Rover has invested $25 million in Lyft to join the autonomous trend.
  • On-premise enterprise software vs. cloud-based SaaS platforms: In 2003, Thomas Siebel of Siebel Systems said Microsoft would roll over Salesforce in the CRM market. In 2005, Oracle acquired Siebel Systems for $5.85 billion. Salesforce’s market cap, in contrast, is more than $60 billion.

Insurance Industry Change and Disruption

At no time in the history of insurance can we find as many game-changing events and a rapid pace of advancement occurring at the same time. At the forefront is the increased momentum for insurtech, and the greenfields and startups within, creating high levels of activity, excitement and concern on the promise and potential of insurance disruption and reinvention.

When you add it all up, the insurance industry has many characteristics that make it an attractive target for aggressive investments in innovation. First, its size is enormous – based on industry data, it is estimated that premiums written are more than $4.7 trillion globally. Second, it faces multiple challenges that offer opportunities for exploitation by nimble, efficient and innovative competitors.

Insurtech advancements and the forces of change see no significant slowdown. The momentum for change that has been building is unstoppable. Industry advancements, cultural trends and IT reactions are gaining speed as they gain strength and a framework for stability and growth. It is pushing a sometimes slow-to-adapt industry by challenging the traditional business assumptions, operations, processes and products, highlighting two distinctively different business models: 1) a pre-digital age model of the past 50-plus years based on the business assumptions, products, processes and channels of the Silent and Baby Boomer generations and 2) a post-digital age model focused on the next generation including the Millennials and Gen Z, as well as many in Gen X.

Greenfields and Startups Make the Boardroom Agenda

The market landscape is rapidly changing. During 2016, Lemonade launched. Metromile decided to become a full-stack insurer, leaving its MGA days behind. New MGAs entered the picture, including Slice, TROV, Quilt, Hippo and Figo Pet Insurance, to name a few.  Existing insurers made market debuts with new startups including Shelter’s Say Insurance with auto insurance for millennials, biBerk from Berkshire Hathaway for direct small commercial lines and Sonnet Insurance as the digital brand from Economical Insurance in Canada, among others.

Add to this the projected shrinking of insurable risk pools due to the emergence of autonomous vehicles, connected homes and wearables and the domino effect of these on other industries, and it’s not hard to imagine a future with traditional carriers fighting over a much smaller pool of customers where only the most efficient, effective and innovative will survive.

As a result, discussion surrounding greenfields, startups and insurtech moved into the board room of every insurer and reinsurer trying to understand how to leverage the shift to the digital age and develop strategies and plans to respond. Yet some insurers have a blind spot in recognizing the competition both from outside and within the industry, and the critical need to begin planning a new post-digital age business model. The result is a growing gap between knowing, planning and doing among leaders and fast followers or laggards, which is rapidly becoming insurmountable due to the pace of change.

Closing the Gap with Greenfield and Startup Business Models

Assuming that most insurers grasp the need for a greenfield and startup mentality to grow, what remains is to aim all efforts toward accomplishing an organizational shift. How do you move your company from the pre-digital age to the post-digital age and close the gap?

It requires leadership to build consensus. It requires vision to aim in the most market-ready direction. And it requires a new business paradigm that will allow for change. We must redefine and re-envision insurance to enable growth and remain competitive.

While many have made progress in replacing legacy systems and traditional business processes, this is not enough. These systems, while modern, were built around pre-digital age business assumptions and models, not to support the range of needs in a post-digital age model driven by a new generation of customers. Like other industries, today’s insurance startups and greenfields need and want options that do not require investment in significant infrastructure or upfront costs and therefore seek a cloud business platform solution to maximize options and minimize costs and capital outlay.

See also: How to Plant in the Greenfields  

A modern cloud business platform provides an advantage for greenfields and startups, breaking down traditional boundaries, IT constraints and age-old business assumptions about doing business, while building up the ability to rapidly develop and launch new products and services. The platform is a robust set of technology, mobile, digital, data and core capabilities in the cloud with an ecosystem of innovative partners (many insurtech technology startups) that provides the ability to launch and grow a business rapidly and cost effectively.

Will established insurers suffer at the hands of tech-savvy, culture-savvy competition? Some may, but only if they allow themselves to. There will be constant pressure from greenfields and startups to outdo each other in the race to better meet the needs and demands of a new generation of buyers in a post-digital age for insurance.

For traditional insurance companies, the need to re-invent and transform the business is no longer a matter of if, but of when.  Insurance leaders should ask themselves: Do we have a strategy that considers transformation of both the legacy business and creation of a new business for the future? Who are our future customers and what will they demand? Who are our emerging new competitors? Where are we focusing our resources…on the business or on the infrastructure?

A new generation of insurance buyers with new needs and expectations creates both a challenge and an opportunity that a greenfield and startup business model can capitalize on to incubate, launch and grow. The time for plans, preparation and execution is now — recognizing that the gap is widening and the timeframe to respond is closing.

How Tech Created a New Industrial Model

With a connected device for every acre of inhabitable land, we are starting to remake design, manufacturing, sales. Really, everything.

With little fanfare, something amazing happened: Wherever you go, you are close to an unimaginable amount of computing power. Tech writers use the line “this changes everything” too much, so let’s just say that it’s hard to say what this won’t change.

It happened fast. According to Cisco Systems, in 2016 there were 16.3 billion connections to the internet around the globe. That number, a near doubling in just four years, works out to 650 connections for every square mile of Earth’s inhabitable land, or roughly one every acre, everywhere. Cisco figures the connections will grow another 60% by 2020.

Instead of touching a relatively simple computer, a connected smartphone, laptop, car or sensor in some way touches a big cloud computing system. These include Amazon Web Services, Microsoft Azure or my employer, Google (which I joined from the New York Times earlier this year to write about cloud computing).

Over the decade since they started coming online, these big public clouds have moved from selling storage, network and computing at commodity prices to also offering higher-value applications. They host artificial intelligence software for companies that could never build their own and enable large-scale software development and management systems, such as Docker and Kubernetes. From anywhere, it’s also possible to reach and maintain the software on millions of devices at once.

For consumers, the new model isn’t too visible. They see an app update or a real-time map that shows traffic congestion based on reports from other phones. They might see a change in the way a thermostat heats a house, or a new layout on an auto dashboard. The new model doesn’t upend life.

For companies, though, there is an entirely new information loop, gathering and analyzing data and deploying its learning at increasing scale and sophistication.

Sometimes the information flows in one direction, from a sensor in the Internet of Things. More often, there is an interactive exchange: Connected devices at the edge of the system send information upstream, where it is merged in clouds with more data and analyzed. The results may be used for over-the-air software upgrades that substantially change the edge device. The process repeats, with businesses adjusting based on insights.

See also: ‘Core in the Cloud’ Reaches Tipping Point  

This cloud-based loop amounts to a new industrial model, according to Andrew McAfee, a professor at M.I.T. and, with Eric Brynjolfsson, the coauthor of “Machine, Platform, Crowd,” a new book on the rise of artificial intelligence. AI is an increasingly important part of the analysis. Seeing the dynamic as simply more computers in the world, McAfee says, is making the same kind of mistake that industrialists made with the first electric motors.

“They thought an electric engine was more efficient but basically like a steam engine,” he says. “Then they put smaller engines around and created conveyor belts, overhead cranes — they rethought what a factory was about, what the new routines were. Eventually, it didn’t matter what other strengths you had, you couldn’t compete if you didn’t figure that out.”

The new model is already changing how new companies operate. Startups like Snap, Spotify or Uber create business models that assume high levels of connectivity, data ingestion and analysis — a combination of tools at hand from a single source, rather than discrete functions. They assume their product will change rapidly in look, feel and function, based on new data.

The same dynamic is happening in industrial businesses that previously didn’t need lots of software.

Take Carbon, a Redwood City, CA maker of industrial 3D printers. More than 100 of its cloud-connected products are with customers, making resin-based items for sneakers, helmets and cloud computing parts, among other things.

Rather than sell machines, Carbon offers them like subscriptions. That way, it can observe what all of its machines are doing under different uses, derive conclusions from all of them on a continuous basis and upgrade the printers with monthly software downloads. A screen in the company’s front lobby shows total consumption of resins being collected on AWS, the basis for Carbon’s collective learning.

“The same way Google gets information to make searches better, we get millions of data points a day from what our machines are doing,” says Joe DeSimone, Carbon’s founder and CEO. “We can see what one industry does with the machine and share that with another.”

One recent improvement involved changing the mix of oxygen in a Carbon printer’s manufacturing chamber. That improved drying time by 20%. Building sneakers for Adidas, Carbon was able to design and manufacture 50 prototype shoes faster than it used to take to do half a dozen test models. It manufactures novel designs that were previously theoretical.

The cloud-based business dynamic raises a number of novel questions. If using a product is now also a form of programming a producer’s system, should a company’s avid data contributions be rewarded?

For Wall Street, which is the more interesting number: the revenue from sales of a product, or how much data is the company deriving from the product a month later?

Which matters more to a company, a data point about someone’s location, or its context with things like time and surroundings? Which is better: more data everywhere, or high-quality and reliable information on just a few things?

Moreover, products are now designed to create not just a type of experience but a type of data-gathering interaction. A Tesla’s door handles emerge as you approach it carrying a key. An iPhone or a Pixel phone comes out of its box fully charged. Google’s search page is a box awaiting your query. In every case, the object is yearning for you to learn from it immediately, welcoming its owner to interact, so it can begin to gather data and personalize itself. “Design for interaction” may become a new specialization.

 The cloud-based industrial model puts information-seeking responsive software closer to the center of general business processes. In this regard, the tradition of creating workflows is likely to change again.

See also: Strategist’s Guide to Artificial Intelligence  

A traditional organizational chart resembled a factory, assembling tasks into higher functions. Twenty-five years ago, client-server networks enabled easier information sharing, eliminating layers of middle management and encouraging open-plan offices. As naming data domains and rapidly interacting with new insights move to the center of corporate life, new management theories will doubtless arise as well.

“Clouds already interpenetrate everything,” says Tim O’Reilly, a noted technology publisher and author. “We’ll take for granted computation all around us, and our things talking with us. There is a coming generation of the workforce that is going to learn how we apply it.”