Innovate May 2017

Frictionless Innovation

Written By: David Whitney

In 1996, Bill Gates wrote and released “The Road Ahead.” In the book, widely recognized as years ahead of its time, Gates described a global economy of friction-free capitalism where an expansion of business networks would combine with connected devices to create what we now call the Internet of Things (IoT). Gates wrote of a networked marketplace that quickened its adoption of the IoT so that frictionless commerce would serve as the accelerant that propelled a new economy into the 21st century.

And what a road ahead it is. The IoT represents, according to many subject matter experts, the third wave of the internet. By whatever name the IoT is called — Internet of Everything, Industrial Internet, Machine to Machine (M2M), Web 3.0 — its pervasive, impactful reach into our lives is unprecedented. If the internet’s first wave built the technological architecture to run the internet, its second wave was defined by applications and software. Then, those two waves gave birth to the internet’s third wave, where hardware’s and software’s billions of connections produce ginormous amounts of data. The data is computationally analyzed and evaluated to reveal patterns, sets, trends, arrangements, sequences, and associations – what is revealed is then crunched together to forecast business trends, preempt criminal activities, proactively fight disease, predict human behaviors and portend market movements.

The opportunities — and challenges — associated with the internet’s third wave are immense. The IoT’s exponential growth is partly due to an ever-increasing amount of bandwidth that allows for device-to-device, always-on communications. And, the growth accelerates with every upgrade and innovation introduced in the marketplace. Gartner, the leading information technology research company in the world, predicts the number of connected devices in the IoT “will increase nearly 30- fold in just over a decade, growing from about 900 million connected devices in 2009 to more than 26 billion connected devices by 2020.”

The result is a market that experiences less friction and thus becomes hyper-competitive as more friction is reduced. Technology’s ubiquitous presence continues to reduce friction in the marketplace; less marketplace friction results in greater competition — which resembles more and more the textbook model of perfect competition. For it is friction that keeps markets from achieving perfect competition through barriers to entry, imperfect information, onerous regulations, insufficient buyers and sellers, distance and transaction costs.

Today’s global marketplace reflects this lessening friction. And as a result, competition sprouts quickly and seemingly appears out of nowhere. In a marketplace with less friction, customers are armed with volumes of knowledge and insights as never before, allowing them to react rapidly and decisively. And when less friction exists in the economy, operational transparency is compulsory for marketplace and social acceptance. Companies are either rewarded for operating transparently or fervently set upon by a chorus of critics for failing to operate with sufficient transparency.

Consider today’s economy. Friction has been reduced — or outright eliminated — to the point where scores of industries are impacted. Think of your own friction: reduced experience when it comes to air travel, overnight delivery, credit cards, ATMs, mobile phones, online commerce, food/beverage ordering and delivery, entertainment and filling up at the gas station. History has shown that technology boosts productivity, yet jobs are lost as productivity rises. As the pace to adopt a friction-reduced economy and launch frictionless innovations accelerates, more workers are expected to lose their jobs.

The fact is that job loss happens when productivity gains occur. It has been a fact of economic life that disruptive innovations have resulted in job losses as well as a restructuring of how jobs are performed — and by whom. So, increasingly, more frictionless business models are disruptive in both nature and outcomes produced. When more frictionless innovation is introduced, increased effort is directed at disrupting the status quo. Uber disrupted the local transportation industry with a strategy of not owning vehicles, which makes sense because Uber is a technology company that tackled the local transportation industry. Airbnb continues to send seismic shockwaves though the hospitality industry — and it doesn’t own a single pillowcase!

Twenty-first century organizations like Uber and Airbnb have — successfully or unsuccessfully, depending on your viewpoint — played the game as it has not been played before. From now on, and in many industries and companies, change is constant. People, information and intellectual capital, and money now move more easily and more frequently.

Companies seek out and nurture more transparent and increasingly fluid relationships with customers, employees, contractors, suppliers and stakeholders. Some companies in certain industries own fewer hard assets; doing so allows them to rely on — and leverage — outsourced solutions for producing the goods and or services needed to operate profitable enterprises.

The new realities of the 21st-century company allow for a more level playing field. Innovations produced by upstart companies like Uber and Airbnb that operate with fewer physical assets sharpen the sword that is used to slay or injure capital-intensive legacy companies. This is David versus Goliath updated and reprised to reflect the weapons of a 21st-century battle in which the weapons — at least in theory — attempt to produce a fairer fight.

Indeed, the weapons of choice used by today’s upstarts are different than in the past. Today’s weapons include both frictionless and friction-reduced business models for the upstart “David” companies. Next, these companies use frictionless innovations as powerful and game-changing weapons; in some cases, these types of innovations can become “equalizers” in a fight against a legacy company still using friction-based business models or innovations. And then, there is the form of intellectual capital that fuels frictionless innovations: patents, copyrights, trademarks and trade secrets. Also included are software, hardware, brand equity, customer capital and supply chain collaborations.

For sure, Goliath won’t run away without a fight. Legacy companies’ financial success and operational strengths are well-equipped and often battle-tested to withstand attacks by upstarts. The question is whether or not an economy that becomes more frictionless poses a threat that even Goliath — perhaps slow to change from a friction-heavy approach — might not be able to overcome. I expect most companies will be challenged to produce innovations that create value in new and unique ways — or lose out to competitors that do so. Increasingly, value is determined by how less and less friction is found in companies’ business models, in interactions with customers and in collaborations with manufacturing-fulfillment-distribution-sales.

In this brave new world, creative destruction and frictionless innovations are emerging as the new normal. Challenges and opportunities are evident, new business models are the weapons for slaying giants, and industries’ boundaries and barriers are eroding. By being open to new ideas, exercising ingenuity and creativity and having the courage to battle against the status quo, today’s innovator is headed in the right direction on the road ahead. 

DAVID WHITNEY serves as the assistant director in the UF Engineering Innovation Institute. Whitney previously served as the entrepreneur in residence in the University of Florida’s Herbert Wertheim College of Engineering and teaches both undergraduate and graduate students in the college. The courses, Entrepreneurship for Engineers and Engineering Innovation, use real-world examples and the experiences of entrepreneurs, intrapreneurs and innovators to teach engineers how to change the world. In addition to his roles at UF, Whitney is the founding managing director of Energent Ventures LLC, a Gainesville-based investor in innovation-driven company. Whitney is also co-chair of Innovation Gainesville 2.0, a regional-based initiative in which people and organizations collaborate to strengthen Gainesville’s innovation economy by bringing 3,500 jobs and securing $250 million in capital investment to the region.

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