Blockchain: A Better Future For Banking

Kris Hansen

Distributed ledger technology (DLT) may make several parts of the post-transaction banking process redundant. That’s an exciting prospect in an industry that spends billions on post-trade processing each year. However, there are several steps that must be completed before the industry is ready to begin using DLT to its full capacity.

Based on blockchain (the DLT that underpins bitcoin transfer), distributed ledgers are databases of transactions shared between the parties conducting those transactions. Moving to a single consolidated view of the truth eliminates the need to keep separate ledgers and to be constantly reconciling different versions of the truth across these views.

By separating the topic of DLT from the bitcoin use case, the technology can be used to model the transfer of any asset or commodity. The cryptography used to encrypt a transaction is secure and can be relied on, a necessity when trading bitcoin due to the anonymity of counterparties. As a result, it removes the risk of fraud, error, or dispute over the details.

DLT’s transparency may improve anti-money-laundering techniques by properly assessing ownership of assets without compromising data security and data protection. By engaging with DLT at an early stage and incorporating its concepts, along with the Internet of Things and cloud technologies, into the process of digital transformation, we can holistically work toward a vision of the new digital enterprise.

It sounds great, but it needs a lot of work. So far firms including Nasdaq and BNP Paribas have been able to develop business-to-client but not business-to-business offerings. The reason is that a lack of standards between firms is preventing the technologies from being joined.

Several consortia are in play with considerable backing from the industry, and each of these has the potential to develop one or more parts of what eventually becomes an industry solution. There is a massive opportunity to redesign and simplify processing in the industry back office, which has seen little automation, without building one legacy platform onto another. Concentrating on the use cases where all firms can find real value is the starting point.

To do that requires a good understanding of the business processes, technology, and regulatory regimes that impact the back office. Banks must engage in this analysis in order to contribute. The cost of capital is rising, business margins are falling, and the risks of disintermediation are increasing.

When approaching a change as massive as DLT, the industry will need to ensure that security and data protection are tightly wound in. Where the boundary between shared services and shared data is a fine line, it is incumbent upon the industry not to cross it. These parameters need to be resolved. By working together, the industry can collectively pull back from the position it finds itself in right now and develop a better future for customers, shareholders, and the business of banking.

With the banking industry in a state of flux, The Banker, in collaboration with SAP, has developed a timely video series titled “Digital Trends Driving Bank Innovation,” which included a video with Ruth Wandhofer, Global Head of Regulatory and Market Strategy, Citi, on Blockchain, Separating Reality from Hype.

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Kris Hansen

About Kris Hansen

Kris Hansen is senior principal, Financial Services for SAP Canada. He is focused on understanding the financial services industry and identifying new and interesting digital opportunities that create disruptive business value.

The Promise And The Peril Of Blockchain

Andre Smith

This past year has seen the integration of blockchain technologies into businesses around the globe. Serious technology professionals regard the technology as a great leap forward for distributed computing, transparency, and security. The blockchain may well be the panacea that they envision it to be, but that doesn’t mean that it is without its share of risk.

The overwhelming hype about blockchain-based services (aided by the explosive rise in the value of Bitcoin and other cryptocurrencies) has created an investing frenzy that calls to mind the dotcom bubble of the late 1990’s or the more recent derivative-fueled financial crisis of 2008. The problem is that the level of excitement far exceeds the tech sector’s ability to bring meaningful and innovative blockchain products to market. This reality has resulted in a speculative vacuum.

Hype breeds fraud

As is usually the case, the first people to notice the overwhelming potential of blockchain technology as a moneymaker were those who would use it for nefarious purposes. As investors clamored to pour money into any ICO they could find, crypto pioneers and financial moguls sounded alarms that were mostly ignored. There have already been some notable red flags.

In November, the team behind a startup called Confido disappeared, taking $375,000 of investor funds with them. The company had claimed to be creating a blockchain-based escrow platform. Investors, in their rush to get involved, were duped by their false promises. In December, the U.S. SEC intervened in the ICO of a company known as PlexCoin, putting a stop to what they identified as a plot by long-time fraudsters to cash in on the ICO craze.

Secure reputation, insecure products

Defrauding investors isn’t the only trend associated with blockchain technologies that should be cause for concern. There is also the potential for the technology to be misused by criminal enterprises to hide illicit transactions, and by startups relying on the public perception of the blockchain as inherently secure as a means of selling products that are anything but. Both have already become a problem.

There are a number of ways that cryptocurrencies, underpinned by the blockchain, may be used as a conduit for illegal activity. There are already real-world examples of the technology being utilized to funnel money to terrorist organizations. Then there are companies like Privatix. Once a consumer VPN service, similar to wink-and-nod offerings like the VPN Hidemyass, Privatix suddenly rebranded itself as a blockchain VPN bandwidth marketplace. In practice, this has the same inherent risks as the Tor network, and they seem to be conflating “blockchain” with “secure” in an effort to mislead consumers.

Guilt by association

What’s at stake in these early days of the blockchain story may be the fate of the technology itself. As large financial institutions and consulting firms seek to position the blockchain in the public consciousness as the ultimate trust platform, there are no shortage of damaging incidents and examples working to undermine them. It also isn’t reasonable to expect that the public at large will draw a distinction between public and private blockchains, nor that they will even comprehend the difference.

It’s far too early to know if big business will be able to co-opt the blockchain and disassociate it from an external market that has been likened to the Wild West. The only thing that is certain is that they have great incentives to do so, since the blockchain could, at least internally, be as transformative as advertised. For now, all we can do is to stay tuned to see what comes next.

To learn more about the blockchain as a trusted platform see Blockchain: Pharma’s Answer to Restoring Trust in Healthcare.

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Andre Smith

About Andre Smith

An Internet, Marketing and E-Commerce specialist with several years of experience in the industry. He has watched as the world of online business has grown and adapted to new technologies, and he has made it his mission to help keep businesses informed and up to date.

2018 Mobile Industry Predictions

William Dudley

In my 11th edition of mobile industry predictions, 2018 is already starting off with technological bombshells, thanks to the U.S. FCC repealing network neutrality regulations in 2017. However, this debate is far from over.

Blockchain is gold: Any company mentioning blockchain suddenly rises to the top, and public companies discussing blockchain see stock valuations sometimes rise dramatically. Those results are primarily based on the hype that bitcoin and other cryptocurrencies experienced in December. Mobile networks continue to flourish, and 5G will likely become reality this year.

2017 predictions: How they fared

First, I’d like to review 2017 predictions to see how they fared against the reality of this dynamic, ever-changing industry. For each 2017 prediction, I will rate the correctness.

2017 prediction: Mobile messaging

Messaging through SMS will continue to grow and become the dominant worldwide channel for customer interactions. SMS will show resilience and staying power. RCS-type deployments will continue to disappoint. There will be no Android equivalent of Apple Messaging. Some IP messaging platforms will become legitimate alternative channels to A2P SMS.

2017 realityA2P messaging and messaging channels grew and our A2P messaging statistics reflected growth with double-digit percentage increases over 2016. Ovum indicates “A2P messaging is projected to grow at 8% CAGR from 2015 to 2018.”

I was wrong about RCS. A2P RCS is making a resurgence thanks to the catalyst of Google Jibe’s RCS Business Messaging. Other RCS hubs including Samsung, Mavenir, and ecrio, are providing solutions around the GSMA Universal Profile 1.0 and 2.0 standards, reducing RCS fragmentation. RCS is poised to become an important engagement channel.

2017 mobile messaging prediction score: 75% correct, because I thankfully I got the RCS part wrong.

2017 prediction: Chatbots 

Chatbots will be heavily hyped, but won’t gain significant prominence, barring a few customer-service solutions, which will ultimately lead to human interaction. Chatbots will replace the voice-call menu tree or request needed information for the human responder.

2017 Reality: Strongly hyped, chatbots are being used more, especially around customer service; however, their prominence is still questionable. Bots are mostly used in non-SMS social chat apps. For some platforms, the ability to discover new bots is a factor. A few SMS-based are being deployed and will play an increasing role in A2P RCS as a core element of conversational messaging on that channel. AI enhancement of chatbots has become commonplace, leveraging solutions like Google’s api.ai (now called Dialogflow) and Microsoft’s Bot Framework, among several.

2017 chatbot prediction score: 100% correct

2017 prediction: 5G

We will see a start of production 5G deployments by mobile carriers, initially targeting IoT applications; however, some will target consumer devices.

2017 reality: Almost a complete, but close, miss. GSA noted that 103 operators in 49 countries are “investing in 5G technology in the form of demos, lab trials, or field tests.” As of December 2017, 32 operators have made public commitments to deploy 5G in 23 countries, including Verizon Wireless, who has committed to roll-out 5G in 3-5 cities. Huawei indicated that Vodafone Italy had achieved the first 5G data connection in Milan, Italy, marking the start of their planned network rollout.

2017 5G prediction score: 20% correct

2017 prediction: LTE

By the end of 2017, there will be at least 650 LTE networks and 200 LTE-Advanced Networks launched worldwide.

2017 reality: At the end of 2017, there were 647 commercially-launched LTE networks with 680-700 anticipated networks. Per GSA, there are 216 LTE-Advanced networks in 105 countries.

2017 LTE prediction score: 100% correct

2017 prediction: Apple

Apple will launch a new iPhone 8 and iOS 11 featuring innovations, including an OLED screen, no hardware buttons, wireless charging, enhanced camera capabilities, and better support for LTE-Advanced. This will lead to record iPhone sales with Apple iOS gaining market share, but not dominating Android.

2017 reality: Apple launched the iPhone 8 and iOS 11; however, also announced and shipped the iPhone X, which included the OLED screen, no home button, and the other features. Wireless charging is available for the iPhone 8 and iPhone X. LTE-Advanced support is mostly unchanged in the new devices. Android-iOS market share varies worldwide, but Android remains in the 80-85% share with iOS at 15-20% share.

2017 Apple prediction score: 85% correct

2017 prediction: Two-factor authentication (2FA)

2FA will continue to be the dominant authentication and security mechanism, especially with increasing account breach reports. 2FA will be the dominant channel over SMS, although 2FA through TOTP solutions will gain prominence.

2017 reality: Breaches continued in 2017, resulting in hundreds of millions, if not over 1 billion subscribers’ data compromised. Deloitte was specifically determined to lack 2FA in place. The FIDO/Javelin State of Authentication 2017 report cited that SMS OTP for mobile was second only to password usage. It was 4th for online, with static and dynamic Knowledge Based Authentication (KBA or “secret” questions) coming in 2nd and 3rd. Software OTP (such as TOTP solutions) followed SMS OTP.

2017 two-factor authentication score: 100% correct

2017 prediction: Wearables

Wearables will grow, but lacking killer applications or functionality, will slowly track upward. Fitness/health continue to be the predominant applications. Apple and Fitbit continue to lead the pack. One or more existing platforms will shut down.

2017 reality: Jawbone, once worth over $3 billion, is said to be in liquidation, and TomTom cut jobs as they began restructuring toward their mapping and navigation. Apple re-took the lead in Q-3 with 23% share, with Xiaomi (21%) and Fitbit (20%) behind. In terms of predominant functionality, health and fitness lead the market; however, with LTE-enabled Apple’s Series 3, applications like messaging, alerts, and communications are gaining usage.

2017 wearables prediction score: 100% correct

2017 prediction: IoT

The most dominant IoT applications will be in transportation, especially vehicle automation, followed by logistics and smart home devices. Few vehicle manufacturers will provide capabilities of Tesla (e.g. downloadable software, self-driving capabilities, etc.), but more car manufacturers will provide mobile apps and remote vehicle management.

2017 reality: According to IoT Institute, asset tracking and monitoring was the most popular use case, followed by automation of manual processes and predictive maintenance. 2017 predictions were a little too specific; however, “automation of manual processes” can cover some consumer-focused IoT implementations. Huge changes in vehicle IoT were not realized, although there has been plenty of press around fundamental changes. The most innovative IoT solutions were in the industrial space.

2017 IoT prediction score: 30% correct

2017 prediction: Mobile operators

Expect some mobile operator consolidation in the U.S., with Sprint or T-Mobile USA being acquired. US Cellular could be acquired with some smaller tier 3 operators, leading to questions of competition and market dominance among remaining operators.

2017 reality: Sprint and T-Mobile again flirted with merging, and again called it off. US Cellular remains independent. Due to the FCC-imposed “quiet period,” there was little M&A among mobile operators in the United States.

2017 mobile operator score: 0% correct

2017 prediction: Mobile point of sale

POS will continue to grow in usage and acceptance by consumers. Apple Pay will top double-digit monthly usage. Consumers will begin to accept mobile payment solutions as more secure than credit cards. More sites will support Apple Pay and Android Pay.

2017 reality: Mobile contactless payment solutions increased. A November Bank Innovation report indicated that Apple Pay should reach 86 million users in 2017. Apple Pay is in 20 markets, representing 70% of the world’s card transaction volume, and in the US at more than 50% of all retail locations. Android Pay and Samsung Pay increased, but sort of split up the Android world. Apple Pay Cash launched in late Q4, enabling users to transfer money through iMessage and other channels, setting up iMessage to become a more comprehensive communications app.

2017 mobile point of sale score: 100% correct

2017 was a tough year for predictions. I was 61% correct, compared to  83% in 2016 and 82% in 2015.

2018 mobile industry predictions

2017 has set the table for new technologies to come to commercial fruition this year. In no particular order, here are my ten mobile industry predictions for 2018:

Mobile messaging continues dominance as the primary engagement tool for consumer interactions. SMS will continue to lead and surpass 2017 volumes. Messaging media usage will increase, including Facebook Messenger, WeChat, and others. For the first time, A2P RCS will launch commercial services with key brands and businesses interacting with consumers through RCS.

2018 will be the year that RCS returns, specifically optimized for A2P (or enterprise/business/brand engagement). While person-to-person or P2P RCS will grow, the biggest impact will be consumer interaction. Most will be through AI-assisted chatbots. By the end of 2018, there will be between 500 -700 million MAUs using RCS globally, starting to rival non-SMS messaging apps. This number will be higher if Apple iMessage supports RCS Universal Profile. 2018 may be the beginning of the end for many mobile apps as users discover that conversation interfaces work as well as, or better than, mobile apps with similar functionality.

Apple will grow its worldwide iOS market share, building on the success of the iPhone X. New iPhones in 2018 will leverage the new technology and capabilities introduced in iPhone X. Expect more enhancements to iMessage and improved LTE Advanced capabilities for more networks globally. 2017 revelations around battery slow-down issues ultimately won’t have much effect. Apple Watch will continue dominance in wearables, increasing its share to almost 30%.

Apple HomePod will launch with innovative capabilities, enabling close integration with Apple mobile devices that Amazon Echo and Google Home will not have. HomePod won’t overtake Amazon or Google, but will become the genesis of a new class of personal digital assistant that will grow in influence.

Authentication leveraging mobile solutions will gain more visibility and usage by global consumers. Two-factor authentication (2FA) over SMS will continue as the most-used solution by consumers, followed by 2FA via mobile apps. Mobile operators will close security vulnerabilities around SMS. Biometric authentication will grow in prominence.

Developer-centric API solutions for mobile channels will increase usage – especially in messaging engagement, fueling mobile messaging as a medium for customer engagement. Self-service by developers and non-developers in messaging – and even chatbot solutions – will bring mobile channels to more businesses, quicker and easier.

Expect over 750 commercially deployed LTE networks, over 300 LTE-Advanced commercially deployed networks, and over 50 5G commercially deployed networks. The GSA noted that 2018 should see over 3 billion LTE subscriptions. At the end of 2017, there were 116 mobile operators “investing in pre-standards 5G networks.” Many will provide fixed-wireless solutions and some specialty solutions. I doubt that we’ll see many mobile handsets supporting 5G; that will likely come to fruition in 2019 and beyond.

The U.S. network neutrality debate is not over. There will be legal and legislative challenges to the December 2017 repeal of various FCC regulations around network neutrality. This is a politically charged issue. Most Americans, as well as technology giants, supported the network neutrality provisions, but many mobile operators wanted them repealed. Expect confusion, but little negative consumer-facing activity by mobile operators and ISPs because of less regulation. Most people won’t notice accessibility changes.

Mobile-network connected IoT devices will continue to dominate the IoT space as industries rush to provide mobile-connected sensors. This will be especially important to asset-tracking across industries, especially those where movable assets must be tracked and maintained. Interestingly, these mobile-network connected sensors will primarily use existing networks. Companies providing IoT solutions will benefit by providing big-data mining, tracking, and maintenance capabilities to manage and process asset data from millions of connected sensors. IoT activities across industrial and consumer-focused solutions will increase substantially.

Blockchain (per Gartner, still in the Peak of Inflated Expectations) will be coupled with mobile platforms and applications to provide innovative solutions for finance, security, and mobile wallet/loyalty programs. Going beyond mobile-based cryptocurrency wallets and apps, mobile devices can be used as blockchain nodes that can store a variety of secure transactions. Innovations will demonstrate that mobile devices can be excellent for blockchain-based solutions, which can be as easy as downloading a specific app for consumers.

Last word

2018 mobile industry predictions cover a wide swath: Mobile messaging (SMS, RCS, messaging chat apps), authentication and blockchain as they relate to mobile, IoT, Apple, network neutrality and much more. This year, I’ve decided to stay away from mergers and acquisitions, though I think we’ll see some, but not as many, as previous years.

A variety of new businesses will emerge and become noteworthy in areas such as chatbots, IoT, 5G, and AI, but don’t rule out existing technology leaders. They, too, are working on innovative and amazing technology. Without doubt, 2018 will be another exciting year in the mobile industry.

For more insight on the future of mobile technology, see Digital Transformation Through Mobile Analytics.

This article originally appeared on The Future of Customer Engagement and Commerce.

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William Dudley

About William Dudley

William Dudley is group director, mobile evangelist, and strategist of the Industry & LoB Products at SAP Digital Interconnect (formerly known as SAP Mobile Services). He has many years of experience building and managing telecommunications network infrastructures. He defines global strategy and solutions for SAP Digital Interconnect, a business unit of SAP, within the mobile ecosystem, focusing on solutions for messaging, mobile-enabled online security, next-generation networks (5G, LTE, IPX), and consumer engagement through mobile channels. As mobile evangelist, Mr. Dudley communicates through both internal and external publications, social media and is active in industry groups. You may follow him on Twitter at @wdudley2009. His primary blog site is https://blogs.sap.com/author/william.dudley/.

Tick Tock: Start Preparing for Resource Disruption

By Maurizio Cattaneo, Joerg Ferchow, Daniel Wellers, and Christopher Koch

Businesses share something important with lions. When a lion captures and consumes its prey, only about 10% to 20% of the prey’s energy is directly transferred into the lion’s metabolism. The rest evaporates away, mostly as heat loss, according to research done in the 1940s by ecologist Raymond Lindeman.

Today, businesses do only about as well as the big cats. When you consider the energy required to manage, power, and move products and services, less than 20% goes directly into the typical product or service—what economists call aggregate efficiency (the ratio of potential work to the actual useful work that gets embedded into a product or service at the expense of the energy lost in moving products and services through all of the steps of their value chains). Aggregate efficiency is a key factor in determining productivity.

After making steady gains during much of the 20th century, businesses’ aggregate energy efficiency peaked in the 1980s and then stalled. Japan, home of the world’s most energy-efficient economy, has been skating along at or near 20% ever since. The U.S. economy, meanwhile, topped out at about 13% aggregate efficiency in the 1990s, according to research.

Why does this matter? Jeremy Rifkin says he knows why. Rifkin is an economic and social theorist, author, consultant, and lecturer at the Wharton School’s Executive Education program who believes that economies experience major increases in growth and productivity only when big shifts occur in three integrated infrastructure segments around the same time: communications, energy, and transportation.

But it’s only a matter of time before information technology blows all three wide open, says Rifkin. He envisions a new economic infrastructure based on digital integration of communications, energy, and transportation, riding atop an Internet of Things (IoT) platform that incorporates Big Data, analytics, and artificial intelligence. This platform will disrupt the world economy and bring dramatic levels of efficiency and productivity to businesses that take advantage of it, he says.

Some economists consider Rifkin’s ideas controversial. And his vision of a new economic platform may be problematic—at least globally. It will require massive investments and unusually high levels of government, community, and private sector cooperation, all of which seem to be at depressingly low levels these days.

However, Rifkin has some influential adherents to his philosophy. He has advised three presidents of the European Commission—Romano Prodi, José Manuel Barroso, and the current president, Jean-Claude Juncker—as well as the European Parliament and numerous European Union (EU) heads of state, including Angela Merkel, on the ushering in of what he calls “a smart, green Third Industrial Revolution.” Rifkin is also advising the leadership of the People’s Republic of China on the build out and scale up of the “Internet Plus” Third Industrial Revolution infrastructure to usher in a sustainable low-carbon economy.

The internet has already shaken up one of the three major economic sectors: communications. Today it takes little more than a cell phone, an internet connection, and social media to publish a book or music video for free—what Rifkin calls zero marginal cost. The result has been a hollowing out of once-mighty media empires in just over 10 years. Much of what remains of their business models and revenues has been converted from physical (remember CDs and video stores?) to digital.

But we haven’t hit the trifecta yet. Transportation and energy have changed little since the middle of the last century, says Rifkin. That’s when superhighways reached their saturation point across the developed world and the internal-combustion engine came close to the limits of its potential on the roads, in the air, and at sea. “We have all these killer new technology products, but they’re being plugged into the same old infrastructure, and it’s not creating enough new business opportunities,” he says.

All that may be about to undergo a big shake-up, however. The digitalization of information on the IoT at near-zero marginal cost generates Big Data that can be mined with analytics to create algorithms and apps enabling ubiquitous networking. This digital transformation is beginning to have a big impact on the energy and transportation sectors. If that trend continues, we could see a metamorphosis in the economy and society not unlike previous industrial revolutions in history. And given the pace of technology change today, the shift could happen much faster than ever before.

The speed of change is dictated by the increase in digitalization of these three main sectors; expensive physical assets and processes are partially replaced by low-cost virtual ones. The cost efficiencies brought on by digitalization drive disruption in existing business models toward zero marginal cost, as we’ve already seen in entertainment and publishing. According to research company Gartner, when an industry gets to the point where digital drives at least 20% of revenues, you reach the tipping point.

“A clear pattern has emerged,” says Peter Sondergaard, executive vice president and head of research and advisory for Gartner. “Once digital revenues for a sector hit 20% of total revenue, the digital bloodbath begins,” he told the audience at Gartner’s annual 2017 IT Symposium/ITxpo, according to The Wall Street Journal. “No matter what industry you are in, 20% will be the point of no return.”

Communications is already there, and energy and transportation are heading down that path. If they hit the magic 20% mark, the impact will be felt not just within those industries but across all industries. After all, who doesn’t rely on energy and transportation to power their value chains?

The eye of the technology disruption hurricane has moved beyond communications and is heading toward … the rest of the economy.

That’s why businesses need to factor potentially massive business model disruptions into their plans for digital transformation today if they want to remain competitive with organizations in early adopter countries like China and Germany. China, for example, is already halfway through an US$88 billion upgrade to its state electricity grid that will enable renewable energy transmission around the country—all managed and moved digitally, according to an article in The Economist magazine. And it is competing with the United States for leadership in self-driving vehicles, which will shift the transportation process and revenue streams heavily to digital, according to an article in Wired magazine.

Once China’s and Germany’s renewables and driverless infrastructures are in place, the only additional costs are management and maintenance. That could bring businesses in these countries dramatic cost savings over those that still rely on fossil fuels and nuclear energy to power their supply chains and logistics. “Once you pay the fixed costs of renewables, the marginal costs are near zero,” says Rifkin. “The sun and wind haven’t sent us invoices yet.”

In other words, zero marginal cost has become a zero-sum game.

To understand why that is, consider the major industrial revolutions in history, writes Rifkin in his books, The Zero Marginal Cost Society and The Third Industrial Revolution. The first major shift occurred in the 19th century when cheap, abundant coal provided an efficient new source of power (steam) for manufacturing and enabled the creation of a vast railway transportation network. Meanwhile, the telegraph gave the world near-instant communication over a globally connected network.

The second big change occurred at the beginning of the 20th century, when inexpensive oil began to displace coal and gave rise to a much more flexible new transportation network of cars and trucks. Telephones, radios, and televisions had a similar impact on communications.

Breaking Down the Walls Between Sectors

Now, according to Rifkin, we’re poised for the third big shift. The eye of the technology disruption hurricane has moved beyond communications and is heading toward—or as publishing and entertainment executives might warn, coming for—the rest of the economy. With its assemblage of global internet and cellular network connectivity and ever-smaller and more powerful sensors, the IoT, along with Big Data analytics and artificial intelligence, is breaking down the economic walls that have protected the energy and transportation sectors for the past 50 years.

Daimler is now among the first movers in transitioning into a digitalized mobility internet. The company has equipped nearly 400,000 of its trucks with external sensors, transforming the vehicles into mobile Big Data centers. The sensors are picking up real-time Big Data on weather conditions, traffic flows, and warehouse availability. Daimler plans to establish collaborations with thousands of companies, providing them with Big Data and analytics that can help dramatically increase their aggregate efficiency and productivity in shipping goods across their value chains. The Daimler trucks are autonomous and capable of establishing platoons of multiple trucks driving across highways.

It won’t be long before vehicles that navigate the more complex transportation infrastructures around the world begin to think for themselves. Autonomous vehicles will bring massive economic disruption to transportation and logistics thanks to new aggregate efficiencies. Without the cost of having a human at the wheel, autonomous cars could achieve a shared cost per mile below that of owned vehicles by as early as 2030, according to research from financial services company Morgan Stanley.

The transition is getting a push from governments pledging to give up their addiction to cars powered by combustion engines. Great Britain, France, India, and Norway are seeking to go all electric as early as 2025 and by 2040 at the latest.

The Final Piece of the Transition

Considering that automobiles account for 47% of petroleum consumption in the United States alone—more than twice the amount used for generators and heating for homes and businesses, according to the U.S. Energy Information Administration—Rifkin argues that the shift to autonomous electric vehicles could provide the momentum needed to upend the final pillar of the economic platform: energy. Though energy has gone through three major disruptions over the past 150 years, from coal to oil to natural gas—each causing massive teardowns and rebuilds of infrastructure—the underlying economic model has remained constant: highly concentrated and easily accessible fossil fuels and highly centralized, vertically integrated, and enormous (and enormously powerful) energy and utility companies.

Now, according to Rifkin, the “Third Industrial Revolution Internet of Things infrastructure” is on course to disrupt all of it. It’s neither centralized nor vertically integrated; instead, it’s distributed and networked. And that fits perfectly with the commercial evolution of two energy sources that, until the efficiencies of the IoT came along, made no sense for large-scale energy production: the sun and the wind.

But the IoT gives power utilities the means to harness these batches together and to account for variable energy flows. Sensors on solar panels and wind turbines, along with intelligent meters and a smart grid based on the internet, manage a new, two-way flow of energy to and from the grid.

Today, fossil fuel–based power plants need to kick in extra energy if insufficient energy is collected from the sun and wind. But industrial-strength batteries and hydrogen fuel cells are beginning to take their place by storing large reservoirs of reserve power for rainy or windless days. In addition, electric vehicles will be able to send some of their stored energy to the digitalized energy internet during peak use. Demand for ever-more efficient cell phone and vehicle batteries is helping push the evolution of batteries along, but batteries will need to get a lot better if renewables are to completely replace fossil fuel energy generation.

Meanwhile, silicon-based solar cells have not yet approached their limits of efficiency. They have their own version of computing’s Moore’s Law called Swanson’s Law. According to data from research company Bloomberg New Energy Finance (BNEF), Swanson’s Law means that for each doubling of global solar panel manufacturing capacity, the price falls by 28%, from $76 per watt in 1977 to $0.41 in 2016. (Wind power is on a similar plunging exponential cost curve, according to data from the U.S. Department of Energy.)

Thanks to the plummeting solar price, by 2028, the cost of building and operating new sun-based generation capacity will drop below the cost of running existing fossil power plants, according to BNEF. “One of the surprising things in this year’s forecast,” says Seb Henbest, lead author of BNEF’s annual long-term forecast, the New Energy Outlook, “is that the crossover points in the economics of new and old technologies are happening much sooner than we thought last year … and those were all happening a bit sooner than we thought the year before. There’s this sense that it’s not some distant risk or distant opportunity. A lot of these realities are rushing toward us.”

The conclusion, he says, is irrefutable. “We can see the data and when we map that forward with conservative assumptions, these technologies just get cheaper than everything else.”

The smart money, then—72% of total new power generation capacity investment worldwide by 2040—will go to renewable energy, according to BNEF. The firm’s research also suggests that there’s more room in Swanson’s Law along the way, with solar prices expected to drop another 66% by 2040.

Another factor could push the economic shift to renewables even faster. Just as computers transitioned from being strictly corporate infrastructure to becoming consumer products with the invention of the PC in the 1980s, ultimately causing a dramatic increase in corporate IT investments, energy generation has also made the transition to the consumer side.

Thanks to future tech media star Elon Musk, consumers can go to his Tesla Energy company website and order tempered glass solar panels that look like chic, designer versions of old-fashioned roof shingles. Models that look like slate or a curved, terracotta-colored, ceramic-style glass that will make roofs look like those of Tuscan country villas, are promised soon. Consumers can also buy a sleek-looking battery called a Powerwall to store energy from the roof.

The combination of solar panels, batteries, and smart meters transforms homeowners from passive consumers of energy into active producers and traders who can choose to take energy from the grid during off-peak hours, when some utilities offer discounts, and sell energy back to the grid during periods when prices are higher. And new blockchain applications promise to accelerate the shift to an energy market that is laterally integrated rather than vertically integrated as it is now. Consumers like their newfound sense of control, according to Henbest. “Energy’s never been an interesting consumer decision before and suddenly it is,” he says.

As the price of solar equipment continues to drop, homes, offices, and factories will become like nodes on a computer network. And if promising new solar cell technologies, such as organic polymers, small molecules, and inorganic compounds, supplant silicon, which is not nearly as efficient with sunlight as it is with ones and zeroes, solar receivers could become embedded into windows and building compounds. Solar production could move off the roof and become integrated into the external facades of homes and office buildings, making nearly every edifice in town a node.

The big question, of course, is how quickly those nodes will become linked together—if, say doubters, they become linked at all. As we learned from Metcalfe’s Law, the value of a network is proportional to its number of connected users.

The Will Determines the Way

Right now, the network is limited. Wind and solar account for just 5% of global energy production today, according to Bloomberg.

But, says Rifkin, technology exists that could enable the network to grow exponentially. We are seeing the beginnings of a digital energy network, which uses a combination of the IoT, Big Data, analytics, and artificial intelligence to manage distributed energy sources, such as solar and wind power from homes and businesses.

As nodes on this network, consumers and businesses could take a more active role in energy production, management, and efficiency, according to Rifkin. Utilities, in turn, could transition from simply transmitting power and maintaining power plants and lines to managing the flow to and from many different energy nodes; selling and maintaining smart home energy management products; and monitoring and maintaining solar panels and wind turbines. By analyzing energy use in the network, utilities could create algorithms that automatically smooth the flow of renewables. Consumers and businesses, meanwhile, would not have to worry about connecting their wind and solar assets to the grid and keeping them up and running; utilities could take on those tasks more efficiently.

Already in Germany, two utility companies, E.ON and RWE, have each split their businesses into legacy fossil and nuclear fuel companies and new services companies based on distributed generation from renewables, new technologies, and digitalization.

The reason is simple: it’s about survival. As fossil fuel generation winds down, the utilities need a new business model to make up for lost revenue. Due to Germany’s population density, “the utilities realize that they won’t ever have access to enough land to scale renewables themselves,” says Rifkin. “So they are starting service companies to link together all the different communities that are building solar and wind and are managing energy flows for them and for their customers, doing their analytics, and managing their Big Data. That’s how they will make more money while selling less energy in the future.”

The digital energy internet is already starting out in pockets and at different levels of intensity around the world, depending on a combination of citizen support, utility company investments, governmental power, and economic incentives.

China and some countries within the EU, such as Germany and France, are the most likely leaders in the transition toward a renewable, energy-based infrastructure because they have been able to align the government and private sectors in long-term energy planning. In the EU for example, wind has already overtaken coal as the second largest form of power capacity behind natural gas, according to an article in The Guardian newspaper. Indeed, Rifkin has been working with China, the EU, and governments, communities, and utilities in Northern France, the Netherlands, and Luxembourg to begin building these new internets.

Hauts-de-France, a region that borders the English Channel and Belgium and has one of the highest poverty rates in France, enlisted Rifkin to develop a plan to lift it out of its downward spiral of shuttered factories and abandoned coal mines. In collaboration with a diverse group of CEOs, politicians, teachers, scientists, and others, it developed Rev3, a plan to put people to work building a renewable energy network, according to an article in Vice.

Today, more than 1,000 Rev3 projects are underway, encompassing everything from residential windmills made from local linen to a fully electric car–sharing system. Rev3 has received financial support from the European Investment Bank and a handful of private investment funds, and startups have benefited from crowdfunding mechanisms sponsored by Rev3. Today, 90% of new energy in the region is renewable and 1,500 new jobs have been created in the wind energy sector alone.

Meanwhile, thanks in part to generous government financial support, Germany is already producing 35% of its energy from renewables, according to an article in The Independent, and there is near unanimous citizen support (95%, according to a recent government poll) for its expansion.

If renewables are to move forward …, it must come from the ability to make green, not act green.

If renewable energy is to move forward in other areas of the world that don’t enjoy such strong economic and political support, however, it must come from the ability to make green, not act green.

Not everyone agrees that renewables will produce cost savings sufficient to cause widespread cost disruption anytime soon. A recent forecast by the U.S. Energy Information Administration predicts that in 2040, oil, natural gas, and coal will still be the planet’s major electricity producers, powering 77% of worldwide production, while renewables such as wind, solar, and biofuels will account for just 15%.

Skeptics also say that renewables’ complex management needs, combined with the need to store reserve power, will make them less economical than fossil fuels through at least 2035. “All advanced economies demand full-time electricity,” Benjamin Sporton, chief executive officer of the World Coal Association told Bloomberg. “Wind and solar can only generate part-time, intermittent electricity. While some renewable technologies have achieved significant cost reductions in recent years, it’s important to look at total system costs.”

On the other hand, there are many areas of the world where distributed, decentralized, renewable power generation already makes more sense than a centralized fossil fuel–powered grid. More than 20% of Indians in far flung areas of the country have no access to power today, according to an article in The Guardian. Locally owned and managed solar and wind farms are the most economical way forward. The same is true in other developing countries, such as Afghanistan, where rugged terrain, war, and tribal territorialism make a centralized grid an easy target, and mountainous Costa Rica, where strong winds and rivers have pushed the country to near 100% renewable energy, according to The Guardian.

The Light and the Darknet

Even if all the different IoT-enabled economic platforms become financially advantageous, there is another concern that could disrupt progress and potentially cause widespread disaster once the new platforms are up and running: hacking. Poorly secured IoT sensors have allowed hackers to take over everything from Wi-Fi enabled Barbie dolls to Jeep Cherokees, according to an article in Wired magazine.

Humans may be lousy drivers, but at least we can’t be hacked (yet). And while the grid may be prone to outages, it is tightly controlled, has few access points for hackers, and is physically separated from the Wild West of the internet.

If our transportation and energy networks join the fray, however, every sensor, from those in the steering system on vehicles to grid-connected toasters, becomes as vulnerable as a credit card number. Fake news and election hacking are bad enough, but what about fake drivers or fake energy? Now we’re talking dangerous disruptions and putting millions of people in harm’s way.

The only answer, according to Rifkin, is for businesses and governments to start taking the hacking threat much more seriously than they do today and to begin pouring money into research and technologies for making the internet less vulnerable. That means establishing “a fully distributed, redundant, and resilient digital infrastructure less vulnerable to the kind of disruptions experienced by Second Industrial Revolution–centralized communication systems and power grids that are increasingly subject to climate change, disasters, cybercrime, and cyberterrorism,” he says. “The ability of neighborhoods and communities to go off centralized grids during crises and re-aggregate in locally decentralized networks is the key to advancing societal security in the digital era,” he adds.

Start Looking Ahead

Until today, digital transformation has come mainly through the networking and communications efficiencies made possible by the internet. Airbnb thrives because web communications make it possible to create virtual trust markets that allow people to feel safe about swapping their most private spaces with one another.

But now these same efficiencies are coming to two other areas that have never been considered core to business strategy. That’s why businesses need to begin managing energy and transportation as key elements of their digital transformation portfolios.

Microsoft, for example, formed a senior energy team to develop an energy strategy to mitigate risk from fluctuating energy prices and increasing demands from customers to reduce carbon emissions, according to an article in Harvard Business Review. “Energy has become a C-suite issue,” Rob Bernard, Microsoft’s top environmental and sustainability executive told the magazine. “The CFO and president are now actively involved in our energy road map.”

As Daimler’s experience shows, driverless vehicles will push autonomous transportation and automated logistics up the strategic agenda within the next few years. Boston Consulting Group predicts that the driverless vehicle market will hit $42 billion by 2025. If that happens, it could have a lateral impact across many industries, from insurance to healthcare to the military.

Businesses must start planning now. “There’s always a period when businesses have to live in the new and the old worlds at the same time,” says Rifkin. “So businesses need to be considering new business models and structures now while continuing to operate their existing models.”

He worries that many businesses will be left behind if their communications, energy, and transportation infrastructures don’t evolve. Companies that still rely on fossil fuels for powering traditional transportation and logistics could be at a major competitive disadvantage to those that have moved to the new, IoT-based energy and transportation infrastructures.

Germany, for example, has set a target of 80% renewables for gross power consumption by 2050, according to The Independent. If the cost advantages of renewables bear out, German businesses, which are already the world’s third-largest exporters behind China and the United States, could have a major competitive advantage.

“How would a second industrial revolution society or country compete with one that has energy at zero marginal cost and driverless vehicles?” asks Rifkin. “It can’t be done.” D!


About the Authors

Maurizio Cattaneo is Director, Delivery Execution, Energy and Natural Resources, at SAP.

Joerg Ferchow is Senior Utilities Expert and Design Thinking Coach, Digital Transformation, at SAP.

Daniel Wellers is Digital Futures Lead, Global Marketing, at SAP.

Christopher Koch is Editorial Director, SAP Center for Business Insight, at SAP.


Read more thought provoking articles in the latest issue of the Digitalist Magazine, Executive Quarterly.

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Human Is The Next Big Thing

Traci Maddox

One of my favorite movies of 2016 was Hidden Figures. The main character, Katherine Johnson, and her team of colleagues had an interesting job title: Computer. Here’s what Katherine said about her job: “On any given day, I analyze the binomial levels of air displacement, friction, and velocity. And compute over 10 thousand calculations by cosine, square root, and lately analytic geometry. By hand.”

That was the 1960s. It was amazing work, but work that took hours to complete – and something an in-memory computer could do in a fraction of a second today.

Just as in-memory computing transformed calculating by hand (and made jobs like Katherine’s much easier), digital technologies are transforming the way we work today – and making our day-to-day activities more efficient.

What’s the real impact of technology in today’s workplace?

We are surrounded by technology, both at home and at work. Machine learning and robotics are making their way into everyday life and are affecting the way we expect to engage with technology at work. That has a big impact on organizations: If a machine can do a job safely and more efficiently, a company, nonprofit, or government – and its employees – will benefit. Digital technologies are becoming increasingly more feasible, affordable, and desirable. The challenge for organizations now is effectively merging human talent and digital business to harness new capabilities.

How will jobs change?

What does this mean for humans in the workplace? In a previous blog, Kerry Brown showed that as enterprises continue to learn, human/machine collaboration increases. People will direct technology and hand over work that can be done more efficiently by machine. Does that mean people will go away? No – but they will need to leverage different skills than they have today.

Although we don’t know exactly how jobs will change, one thing is for sure: Becoming more digitally proficient will help every employee stay relevant (and prepare them to move forward in their careers). Today’s workforce demographic complicates how people embrace technology – with up to five generations in the workforce, there is a wide variety in digital fluency (i.e., the ability to understand which technology is available and what tools will best achieve desired outcomes).

What is digital fluency and how can organizations embrace it?

Digital fluency is the combination of several capabilities related to technology:

  • Foundation skills: The ability to use technology tools that enhance your productivity and effectiveness
  • Information skills: The ability to research and develop your own perspective on topics using technology
  • Collaboration skills: The ability to share knowledge and collaborate with others using technology
  • Transformation skills: The ability to assess your own skills and take action toward building your digital fluency

No matter how proficient you are today, you can continue to build your digital IQ by building new habits and skills. This is something that both the organization and employee will have to own to be successful.

So, what skills are needed?

In a Technical University of Munich study released in July 2017, 64% of respondents said they do not have the skills necessary for digital transformation.

Today's workplace reality

These skills will be applied not only to the jobs of today, but also to the top jobs of the future, which haven’t been imagined yet! A recent article in Fast Company mentions a few, which include Digital Death Manager, Corporate Disorganizer, and 3D Printing Handyman.

And today’s skills will be used differently in 2025, as reported by another Fast Company article:

  • Tech skills, especially analytical skills, will increase in importance. Demand for software developers, market analysts, and computer analysts will increase significantly between now and 2025.
  • Retail and sales skills, or any job related to soft skills that are hard for computers to learn, will continue to grow. Customer service representatives, marketing specialists, and sales reps must continue to collaborate and understand how to use social media effectively to communicate worldwide.
  • Lifelong learning will be necessary to keep up with the changes in technology and adapt to our fast-moving lives. Teachers and trainers will continue to be hot jobs in the future, but the style of teaching will change to adapt to a “sound bite” world.
  • Contract workers who understand how businesses and projects work will thrive in the “gig economy.” Management analysts and auditors will continue to be in high demand.

What’s next?

How do companies address a shortage of digital skills and build digital fluency? Here are some steps you can take to increase your digital fluency – and that of your organization:

  • Assess where you are today. Either personally or organizationally, knowing what skills you have is the first step toward identifying where you need to go.
  • Identify one of each of the skill sets to focus on. What foundational skills do you or your organization need? How can you promote collaboration? What thought leadership can your team share – and how can they connect with the right information to stay relevant?
  • Start practicing! Choose just one thing – and use that technology every day for a month. Use it within your organization so others can practice too.

And up next for this blog series – a look at the workplace of the future!

The computer made its debut in Hidden Figures. Did it replace jobs? Yes, for some of the computer team. But members of that team did not leave quietly and continue manual calculations elsewhere. They learned how to use that new mainframe computer and became programmers. I believe humans will always be the next big thing.

If we want to retain humanity’s value in an increasingly automated world, we need to start recognizing and nurturing Human Skills for the Digital Future.

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Traci Maddox

About Traci Maddox

Traci Maddox is the Director of the North America Customer Transformation Office at SAP, where she is elevating customer success through innovation and digital transformation. Traci is also part of the Digital Workforce Taskforce, a team of SAP leaders whose mission is to help companies succeed by understanding and addressing workforce implications of digital technology.