Yet the true impact begins not with invention, but adoption. That’s when the second and third-order effects kick in. After all, the automobile was important not because it ended travel by horse, but because it created suburbs, gas stations and shopping malls.
In much the same way, over the next year we will to begin to feel the true impact of the “app economy.” In the past, open architectures have mostly been of interest to technophiles and status-conscious millennials. Now, however, they are becoming so pervasive that every business, large or small, will have to connect in order to compete.
The App Store
When Steve Jobs and Apple launched the iPhone in June of 2007, it was an instant hit. Hundreds of consumers lined up at stores to be among the first to buy one and millions were sold in the first year. After only five quarters it surpassed Blackberry—the market leader at the time—and became a consumer icon.
Yet it wasn’t till a year later that Apple really changed the world. That was when the App Store arrived. 10 million apps were downloaded in the first three days and that number grew into more than a billion within a year. Looking back at those early apps, they seem amazingly primitive, but at the time they were revolutionary.
Apple, in essence, transformed the iPhone from a consumer product to an ecosystem. The company provided tools like Software Development Kits (SDK’s) and Application Programming Interfaces (API’s), so that anyone, anywhere could alter and improve the functionality of Apple products.
It also created a major advantage for Apple. Anyone who wanted to compete with it would have to not only match its capabilities and performance, but the collective efforts of thousands of independent developers, all striving to create something useful for Apple’s legions of fans.
And it’s not just Apple anymore. Today, brands are becoming platforms that rely less on the features of their products and more on the breadth and quality of their connections.
The ‘Mom and Pop’ Ecosystem
Most software companies target the deep pocketed corporate customers, but Intuit creates business software for the rest of us. Founded in 1983, the company produced best selling personal finance software like Quicken and TurboTax. Based on that success, they designed QuickBooks to cater to the needs of small businesses.
Although QuickBooks, like Intuit’s earlier products, became a great success, there’s only so much you can do with software from a box. Work orders, timesheets and other process oriented tasks still needed to be prepared on paper and then input by hand. For small business owners, QuickBooks was helpful, but hardly transformative.
Now, Intuit is looking to change that by building an ecosystem for small businesses on Apps.com. Much like Apple’s App Store, the company provides tools so that developers can seamlessly integrate their products into QuickBooks and small business owners can get many of the benefits of sophisticated ERP systems for a small fraction of the price.
In a similar vein, Kareo makes cloud-based software that helps doctors in private practice compete with larger operations. Now it has created a marketplace where customers can access a variety of applications, such as ZocDoc, which helps them market to new patients and records management solution Iron Mountain, which helps to keep their practice HIPAA compliant.
One of the most exciting things to happen in technology for a long time is IBM’s Watson system, which combines artificial intelligence with big data to create what the company calls cognitive computing—machines that think much like humans do, but with infinitely more capacity.
The effort has been going on for decades. IBM got its first big triumph when its Deep Blue computer defeated world chess champion Garry Kasparov in a widely publicized match. Then, Watson beat two all-time champions at Jeopardy, a far more difficult task. Now, Watson is being deployed in more serious work, like the fight against cancer.
The next step is where it really gets interesting. Like Apple and Intuit, IBM is opening up Watson to outside developers. It has already partnered with Fluid, to make retail recommendations, MD Buyline, to streamline purchasing at hospitals and Welltok to provide health advice to consumers.
IBM will also expand the program by offering development tools to anyone who would like to work with their platform, which will extend its reach even further. Anybody with an idea will be able tap into the power of Watson to solve problems, both large and small.
So, for example, a small building contractor will not only be able automate his workforce with mobile and QuickBooks apps, but can also ask his smartphone for recommendations on a tough job. Even for our most mundane tasks, we will be able to access the sum total of human experience as naturally as we would call a buddy down the street.
The Talent Ecosystem
All of this automation and efficiency does come with a price. As MIT’s Andrew McAfee shows, while the returns to capital are increasing, returns to labor are decreasing. In other words, as our machines become more capable, we risk devaluing the work of humans, which may have serious repercussions for our society as a whole.
Elance is a company that’s seeking to close that gap by creating an ecosystem for talent. It currently serves over 3 million freelancers and 800,000 businesses in 170 countries. Yet it is far more than a mere matching service, but actively monitors which skills are most demanded in the marketplace and then goes and helps create the supply.
For example, a very popular skill in its database is logo design, but since 80% of those jobs are filled, designers may find it difficult to get a job at a good rate. Elance can suggest one of 20,000 training courses so that logo designers can get certified in an adjacent skill, such as book illustration, which has a more favorable supply/demand ratio.
The company also partners with corporations to create talent clouds and has recently worked with IBM to offer Watson certification to its freelancers. So companies who use the service can indicate that they are interested in building Watson based apps. E-mails go out to talent, new skills are built and jobs get done.
A Fundamental Paradigm Shift
What’s most interesting about these ecosystems is that they are not isolated, but connected into a grand ecosystem themselves. Powerful software, supercomputing capacity and highly skilled talent are no longer assets to be acquired and leveraged, but resources that can be accessed by just about anyone.
This means that we will all have to rethink how we run our businesses, because a competitor or game-changing opportunity can come from just about anywhere. Here’s what you should keep in mind.
Brands are Becoming Platforms: Brands are important assets, usually accounting for the majority of the value of a business. So it shouldn’t be surprising that brands have historically been jealously guarded and protected. Yet now, rather than sterile assets to be leveraged brands are becoming platforms for innovation and co-creation.
Apple, Intuit and Kareo have thousands of developers working to enhance their products and it doesn’t cost them a penny. By opening up its Watson system, IBM seeks to increase revenues at its consulting division and at Softlayer, which it recently acquired. The company is also exploring a variety of revenue sharing models.
What’s becoming clear is that the age of the stand-alone brand is over. You’re either connected or you’re dead.
Passion and Connections Trump Assets and Capabilities: In the scale economy, bigger was always better. The aim of every entrepreneur was to grow their business in order to acquire greater assets and capabilities. These, in turn, could then be leveraged for more growth, creating a virtuous circle. Success would breed more success.
Now, however, we are operating in a semantic economy where everything is connected and no one is safe. No matter what business you are in, someone can come up with an idea, access the capabilities they need—from logistics to finance, technology to talent—and be competing with you by lunchtime.
The bottom line is that the function of an enterprise is no longer to create efficiency by organizing men and material, but to create value by directing passion and purpose.
Every Business Must Be Reimagined: Technology is now transforming human experience at an extremely visceral level. If you are competing with the plumbing company across town—or a startup across the world—you now have the same capabilities as the world’s largest corporations at your beck and call.
But then again, so does everybody else and that’s why 2014 will be the year of the ecosystem. This is no longer the stuff of gadget-crazed millennials and slick conference presentations of “thought leaders,” but is beginning to permeate every aspect of society and commerce.
And that’s how revolutions gain their power, not from leaders or even ideas, but when ordinary men begin to imagine that they could become kings.
Greg Satell is an authority on Digital Strategy and Innovation. His blog is Digital Tonto and you can follow him on Twitter. This piece first appeared in his Forbes column.