Paul Saffo: Trading in A Cloud of Electrons

By Roland Piquepaille

In its latest issue, BusinessWeek Magazine publishes a special report, "E-Biz Strikes Again!," which states that after transforming the book, music and travel industries, the Internet is well on its way to deeply affect six more industries, such as jewelry or real estate sales. The online version of this report includes an interview of Paul Saffo from the Institute for the Future, "Trading In A Cloud Of Electrons." In it, Saffo talks about the big changes that the Web has brought to business and culture. He also delivers some provocative thoughts about what's next. He says that services will replace physical products as business opportunities. For example, he thinks that the auto makers will give you cars for free, making money by selling you lots of services, such as a $30 chip which will transform your car into a Ferrari-class vehicle.

Here is the introduction to this interview.

More than most Silicon Valley technology forecasters, Paul Saffo likes to squint. His job as a director at think tank the Institute for the Future in Menlo Park, Calif., is to look a full 10 years over the horizon. In 1997, he predicted sensors would become the next wave of information-technology innovation. Only today is the rest of the world talking about radio-frequency identification chips and other sensors heading into the mainstream.

Six years ago, Saffo wrote that the accepted notion that the Internet would "disintermediate" industries, or eliminate middlemen, was flawed. Instead, he says, the lower cost of selling over the Net actually produces even more middlemen -- which helps explain the rise of phenoms such as search giant Google and online marketplace eBay as new marketing conduits to online customers.

And here are short excerpts of the interview itself.

Q: Is there anything fundamentally different about the new industries, such as jewelry and real estate? Will they play out differently on the Web than more commodity products, like books and CDs?

A: New technologies lead to new products. What new things came after the invention of television? TV dinners, TV trays, and the Veg-O-Matic. Why the Veg-O-Matic? If you saw a Veg-O-Matic on the shelf, you would think it's a medieval torture device. You could not create demand without the constant repetition of ads on television. It's a classic example of new technology turning into a medium that creates entirely new products.

Q: How far [the replacement of physical products by services as the actual business opportunity] will go?

A: This is happening with automobiles. My wife's C-class Mercedes (DCX ) has 153 processors on board. It's already not quite a pure product. You get free service for 50,000 miles, but it's not free -- it's in the price of the car. So it really is a service. But there are other services that follow on, like on-road repair service.

The next phase is, they'll give me the car for free, because they'll make it up off of service. I'll be driving up Highway 101, and a screen lights up and a voice says, "Paul, you're 2,000 miles past your oil change. We've already notified Autobahn Motors, and we have two mechanics ready to change your oil. And there's a Starbucks eggnog latte waiting for you."

Or you have a sports car and you want to change the performance of your car. It used to be they would [modify the engine]. Now, they just put a different chip in. For $30, you'll be able to download a Ferrari performance suspension package into your car when you're driving.

Source: Robert D. Hof, BusinessWeek Magazine, May 10, 2004 Issue