Tag Archives: nauto

On-Demand Economy Is Just Starting

Fifteen years ago, the idea of having access to any bit of information you could possibly want at your fingertips was outrageous. In 2001, you could get access to the Internet from your phone, but the experience would be slooooow, and it might cost you hundreds of dollars. Dial-up Internet from desktop computers – remember them? – was still very much a thing. Now, people carry smartphones that give them instant access to just about anyone, to every bit of news and to almost all the knowledge in recorded history.

People use those devices mostly to watch videos of singing goats and people failing at dunking a basketball, but that’s a different story.

The point is that technology, such as smartphones and smart watches, has created an on-demand world where gratification needs to be instant. When someone decides he wants something, he doesn’t want it in two hours. He doesn’t want it in 20 minutes. He wants it now. And, he wants it at the push of a button.

As the trajectory of the last 15 years shows, the trend toward on-demand will only continue, perhaps even accelerate.

The main driver, as usual, is good, old Moore’s Law, which has seen the computing power of a chip double every year and a half to two years since the 1960s at no increase in cost. Moore’s Law is why a gigabyte of memory, which cost $300,000 in the mid-1980s, today costs less than a penny, and why, despite some technology headwinds for Moore’s Law, we’ll have devices hundreds of times as powerful as today’s before kids born this year enter high school.

Other “laws,” such as Metcalfe’s, continue to drive the value of networks at an exponential rate. So-called “network effects” are why millennials rarely have their phones more than a foot away and why there is so much effort to make devices even more accessible – in front of your eyes, a la the failed-but-not-forever-dead Google Glass, or on your wrist as a “watch.” Nicholas Negroponte, the founder of the MIT Media Lab, has argued for years that we’ll eventually wind up with cellphones surgically implanted behind our jaws, where they will have easy access to our vocal cords and our ears.

But Moore’s Law and Metcalfe’s and the others that have driven the unbelievable progress in computing are just the start. Now, three more factors are kicking in, increasing the pace toward the on-demand world. First, sensors and cameras are wiring more and more of the world every day. Second, people are coming up with new business models that build on these new capabilities in surprising and powerful ways. Third, the effects will spread to what is sometimes referred to as “the next billion” (and the billion after that). Those of us in the developed world won’t have all the fun; the rest of the world will join in.

Sensors and Cameras

Fitbit et al. track every step you take and every calorie you burn, and they’re just the beginning. People have begun talking about the “Internet in Me.” The idea is that you might ingest some small sensor that will report from inside your blood stream about blood pressure, blood sugar, etc. A wireless signal – powered by the abundant electricity inside us – would send the information to your phone or watch, which would relay any necessary information to a doctor or some sort of healthcare provider.

Drones are everywhere. They can check crops, monitor disasters or do whatever. In fact, woe to the next generation of teenagers – parents can now just keep a drone in the home and have it fly around from time to time to see if Junior is having a party while they’re away.

Our mobile phones constantly provide information on traffic flow, based simply on how fast they’re moving in our cars. (When is the last time you saw a traffic copter, let alone a thin rubber hose across a road that tripped a counter every time a car ran over it?) Waze has layered crowdsourcing on top of the data from mobile phones, encouraging people to report accidents and other delays, to fine-tune maps and so forth. Nauto, a start-up, is trying to add another layer by getting fleet operators—and, eventually, individual drivers—to put cameras in vehicles (one looking at the road, one looking at the driver) with the initial goal to improve safety. If enough of Nauto’s cameras are on the road, they will provide a real-time look at the world. Want a parking spot right now? Nauto can tell you about the one that opened up 30 seconds ago a block away.

Google is gathering information in real time about diseases like the flu – it can report when and where a lot of people start searching for information about certain symptoms. Even our thoughts and emotions are getting wired. Historically, in presidential elections, people conducted the occasional opinion poll, so you’d have a sense of the result of the debate a week or so later. Now, people monitor Twitter streams and Google searches in real time to assess who won and who lost. Those feelings then get aggregated in prediction markets that are far more accurate than political observers ever were. Of course, a lot of effort gets put into figuring out presidential elections because of the stakes involved, but this kind of wiring and immediate response will spread into other areas, as well.

The physical world is being folded into the digital one through hacks such as QR codes, which let magazine readers scan them to figure out where they can purchase an outfit or whatever else is in an image. Amazon’s voice-activated Alexa sits in the middle of a room and allows people to buy something through Amazon right when they think of it, even if they don’t have their phone near them.

Our lives divide into two parts these days: Those that are wired and those that will be wired. 

New Business Models

Just Google “the Uber of,” and you’ll see how much a single inventive business model can change things. You’ll be prompted with companies offering the Uber of trucking, dog walking, laundry, snowplows, tennis partners dentistry and much more. There is a powerful example in the insurance industry: WeGoLook, which is being called the “Uber of claims handling.” If a carrier needs a picture of a car, it can send someone out from the office, or it can draw on the tens of thousands of freelancers affiliated with WeGoLook and have one of them take the necessary pictures and gather the information. Especially in rural areas, it can be a lot cheaper to have a local person gather the information than to send someone out from a regional office. And, through the wonders of information technology, WeGoLook can be so thoroughly integrated into a carrier’s system that the person asking for the photos, etc. doesn’t need to even think about whether the request is being fed to an internal person or to WeGoLook.

Even without totally new business models, tweaks are accelerating the pace of the economy. Seamless, the on-demand food delivery service, has shaken things up by making it much easier for customers to order food for takeout or delivery. Venmo has become popular among millennials by greatly simplifying the process of sharing costs and, in general, making small payments to each other.

Amazon went from “delivery some time” to mostly two-day delivery, via Prime. Now it is working hard to get to same-day delivery and is even experimenting with drones that could deliver within perhaps 20 minutes.

These business model changes will keep unfolding, too, in many cases like a slow-motion train wreck. You can already see some of the ways that 3D printing will step up the pace – you just click on the image of a hairbrush you want and have it start printing in your office immediately. Or look at the news business. Remember weekly news magazines like Time, Newsweek and BusinessWeek? Not only have they gone away but even daily publications like the Wall Street Journal have had to switch to instantaneous publication online – no more holding the big stories for the print edition the next morning. Those of us of a certain age remember what a big deal it was when Monday Night Football showed highlights from the day before. Now, we don’t even have to wait for Sports Center at the end of a game. We can just call up a highlight on our phones. If you look at the changes going on at CNN, you can see that its mission has changed, because there is a new form of 24-hour news network: It’s called the Internet, and it’s “on-demand” — no need to keep Wolf Blitzer droning on in the background.

The Next Billion

As more and more people from countries such as China and India and places in Africa enter the middle class, they will get access to all the technologies that drive the on-demand economy in the rest of the world. In some cases, they will even leapfrog us. In Kenya, for instance, growth in the traditional sort of banking is stunted even as the economy grows, because people use their mobile phones to exchange money. Who wants to go to a bank and wait for a teller?

And these changes in technology, business models and demographics are just the things we know about. You can be quite sure that lots of clever people are already at work on other ways that will speed the move toward the high-speed economy.

Think of the shift in the economy as the move from the demand curve to the on-demand curve.

The Problem With Telematics

When I attended the Insurance Telematics USA conference in Chicago earlier this month, I expected to see much more enthusiasm. I first wrote about Progressive’s venture into telematics all the way back in the late 1990s, and technology has improved so much since then that the telematics industry would surely be bragging about its breakout into the mainstream or at least predicting that one was imminent. The idea just makes so much sense: being able to track cars so that insurance risks can be determined very precisely for individual drivers, while even providing feedback that improves driving.

While the telematics technology is, in fact, stunning and while there are reasons for great optimism, what I found was not an industry brimming with confidence. I found an industry still searching for the right business model.

Until the industry solves that problem, progress will remain limited.

The Problem

The current approach to telematics is generally to install a device in a customer’s car for six months and have it relay the driver’s actions back to the insurer for evaluation. At the end of the six months, the device is uninstalled, and the insurer tells the driver what sort of discount, if any, she will receive based on her driving habits. A key point is that the issue at hand only concerns discounts; insurers have promised that they won’t raise rates if they find that someone is a worse risk than expected.

Think about the expense that goes into that model: manufacturing the telematics devices; installing and uninstalling them; and transmitting lots of data over a wireless network on which the insurer has to buy bandwidth.

Now think about the benefits. The prospect of a discount has attracted enough good drivers that, if all telematics-based auto policies were rolled into one company, it would be close to being in the top 10 among auto insurers in the U.S. Ptolemus, a strategy consulting firm, said there are 4.4 million cars in the U.S. carrying usage-based insurance (UBI). That’s a lot of cars. But there are 253 million cars and trucks in the U.S., so the market penetration of UBI is just 1.7%. Even in the main ballroom of the conference, full of ardent proponents, only about 5% raised their hands when asked if they had UBI.

Many customers turn out to not be that focused on discounts. They would prefer receiving free access to other services, such as roadside assistance — but what services customers want, how to bundle those services, etc. has yet to be worked out.

Even if some new package of free services drove 10 times as many people to buy UBI auto policies, telematics wouldn’t do much to make roads safer. Insurers are offering incentives to a self-selected group of drivers who are already among the safest on the road but, because insurers have decided they can’t raise rates for bad drivers, won’t be doing anything about the people who cause a huge portion of the accidents and, thus, the costs.

The current business model works — barely. The costs are too high, the offering to consumers isn’t right and the benefits to insurers are too low.

The Potential

Help is on the way from two main sources, which I have seen drive innovation in industry after industry since I started following the world of information technology almost 30 years ago. One source is what I think of as the power of “free.” The other is the power of a platform.

The Power of “Free”

The behavioral economist Dan Ariely has done all sorts of experiments about the power of free and found that it is almost magic. For instance, if someone does volunteer work and you decide to thank him by paying him a little, he will likely cut back on the work he does for you or even stop. Ariely reasons that people evaluate paid work in a hard-nosed way — how many hours do I work, how hard or skilled is the work, how much do others get paid for this work, etc.? — and evaluate volunteer work based on altruistic measures, such as the quality of a cause. If you have people evaluate the return from their free work on a paid scale, you’ll lose them. Similarly, he says, you can get people to do all kinds of uneconomic things if remove a paltry cost and make something free.

The power of free computing and communication has driven the upheaval of business over the past 30 years, spawning the wide adoption of the Internet, smartphones, etc. and all the business models that have come along with them. (Obviously, we still pay for computers and storage devices, but they are essentially free by comparison with where they were in the 1980s — a gigabyte of memory, which cost $300,000 then, costs about a penny today. Communication costs have gone way down and are headed toward something approaching free, even though telecom and cable companies will fight a rear guard action as long as they can.)

Now the power of free is coming to telematics, because the cost of acquiring information on drivers is heading toward zero.

In the short term, that will be because of smartphone apps. Although some say the data they generate isn’t quite as precise as that from sensors in cars, the apps are good enough for the vast majority of uses, and they cost roughly nothing. There isn’t any need to make a dongle for the car and install and uninstall it. Nor is there a need for the insurer to buy a wireless data plan for the car. The app can do most of the analysis on the phone and just send modest amounts of data back to the insurer, using the driver’s wireless plan.

In the long term, things will get even better as “connected cars” move into the market. These cars, already connected wirelessly to the Internet, will automatically generate the kind of information that insurers need. Insurers will be able to know what kind of a driver someone is at the moment she applies, rather than having to guess and then wait six months to know for sure.

The Power of a Platform

From the 1950s through the early 1980s, when IBM controlled the computer industry, the pace of innovation was glacial by today’s standards. Part of the reason was that the pace let IBM milk maximum profits, but part was also because IBM had to produce what software types would call the “full stack.” IBM had to develop the semiconductor technology that allowed for faster processors; design those processors; manufacture the processors; design and manufacture just about all the support chips, especially memory; assemble the mainframes; code the operating system; and generate the major pieces of application software. Everything had to come together, from one company, before the next step in innovation happened.

When the PC came along in 1981, with its open architecture, innovation became a free-for-all. Intel owned the chip, and Microsoft the operating system, but everything else was fair game. Companies flooded into the market, innovating in all kinds of smart ways, especially with applications such as the spreadsheet, and the market took off.

The telematics market is well on its way to making the transition from the IBM mainframe days to the open days of the PC and beyond. Initially, Progressive had to pull an IBM and invent the whole process for telematics from beginning to end. Now, an ecosystem has developed, and all sorts of companies are free to innovate at any part of the process.

Verisk has announced an exchange, to which car makers and insurers can contribute data on drivers and from which they can pull information. GM has said it will contribute data from its OnStar system, and GM has one million 4G-connected cars on the road in the U.S. So, the need for everyone to generate their own data is going away.

The Weather Channel (represented on the panel I moderated at the conference) has information that can correlate bad weather very precisely with driving behavior — the company is even working to aggregate information on the speed at which cars’ wipers are operating, to understand in a very granular way just how severe a storm is in a certain spot.

Many other companies are innovating in new parts of the ecosystem, rather than just focusing on pricing risks better or acquiring customers. For instance, my friend and colleague Stefan Heck, a former director at McKinsey with whom I wrote a book (along with Matt Rogers) about how innovation can overcome resource scarcity, just unveiled an extremely ambitious approach to improving safety, through a company called Nauto. (A writeup in re/code is here.) Agero made a presentation at the conference about how telematics can speed claims processing and cut costs while making customers happy — essentially, the telematics system notifies the insurer instantly about an accident, so the insurer can provide whatever reassurance and help is necessary, while also sending someone to the scene so fast that it can take control of the process, rather than deferring to, among others, municipal towing companies.

The Future

The power of free and the power of a platform ensure that, before too many years go by, the costs for telematics will drop drastically and the benefits to insurers and customers will increase greatly. That still leaves insurers with the task of figuring out the right offering to customers, but, in my experience, once costs get low enough and lots of innovators get interested, experimentation eventually produces the right business model.

The question to me is: Who will that winner be?