Author: Reid Hoffman, Entrepreneur. Product Strategist. Investor – April 03, 2014
Over the next decade and a half, 2.5 billion people in China, India, and other developing countries will join the global middle class. They are going to need skyscrapers to live in and super-stores to shop in. They are going to want smartphones, cars, flank steaks, air conditioning, pet clothing, Disneyland vacations, and probably some throw pillows.
How is a planet already straining under the pressure of today’s 2 billion middle-class consumers going to accommodate 2.5 billion additional ones?
For many observers, this unprecedented economic growth foretells a Malthusian meltdown. In this scenario, skyrocketing demand for scarce natural resources will lead to unchecked carbon emissions, water wars, massive deforestation, $100 Big Macs for the rich and cricket-meat Bug Macs for everyone else.
McKinsey director Matt Rogers and Stanford professor Stefan Heck have a more optimistic take on the future. In their compelling new book, Resource Revolution, they show how a third Industrial Revolution, focused on radically optimizing land usage and natural resources, is starting to materialize.
In their vision, the combination of finite resources and exploding demand for raw materials and finished goods isn’t a recipe for disaster. Instead, they see it as “the biggest business opportunity in a century.” Dealing with resource scarcity will compel companies to adopt new technologies, new manufacturing processes, and new management practices — all of which will drive innovation faster and faster.
As the global middle class expands, there will massive opportunities for entrepreneurs to create more efficient industries and more productive business ecosystems. Technologies and industries will collide in new and unexpected ways, and these entrepreneurial mash-ups, inspired in part by scarcity, will potentially produce greater utility and prosperity for society at large.
Take, for example, the car industry. Its production processes have been refined over a century of increasing consumer adoption and global competition. Its elaborate ecosystem of dealerships, service stations, roads, highways, parking lots, and fast-food joints with drive-thru windows is so robust and pervasive that driving in America feels as natural as breathing.
And yet for all its culture-shaping success, the entrenched car industry is wildly inefficient – and not just in terms of the 14 miles per gallon a Chevy Camaro gets. Even the most fuel-efficient cars aren’t driving machines as much as they’re parking machines. The average car is on the road only 4 percent of the time. And in that hour or so each day it’s in motion, it does a horrible job of leveraging the energy it requires to operate.
According to physicist and environmentalist Amory Lovins, almost all the energy in a car’s gas tank is either lost to heat dissipation, tire wear, idling, and powering accessory systems like air conditioning, or used to move the massive weight of the car itself – less that 1 percent of that energy is actually used to move the vehicle’s operator. On a similar note, roads reach peak throughput only about 5 percent of the time.
In recent years, however, resource scarcity and the new approaches it inspires has brought innovation to the car industry from entities with expertise in electric batteries, consumer electronics, and information technologies rather than combustion engines.
Tesla and Toyota are building cars that use high-torque, low-waste electric motors. Zipcar, Uber, and similar services make car- and ride-sharing as convenient and reliable as car-owning – thus turning more and more cars into driving machines rather than parking machines. Driverless technologies, pioneered by Google and now pursued by virtually every major car manufacturer and various other institutions (such as universities), will be ready for public adoption as early as 2017. The driving efficiencies that such technologies enable will eventually give every 4-lane highway the throughput of a 32-lane highway.
Tomorrow’s cars won’t just use natural resources more efficiently than today’s do. They’ll also make automobility cheaper, accessible to a wider range of users, more convenient, and faster. Thanks to driverless technologies and the car-sharing services they’ll enable, blind people and old people will be able to transport themselves without assistance. Circling for parking will go the way of dial-up modems. And millions of suburban garages, no longer needed to store two or three lightly used late-model sedans, will be leasable through Airbnb and other sharing platforms as office space for millions of new start-ups!
Ultimately, using raw materials, water, and energy more efficiently – and thus boosting resource productivity – means using them more intelligently. And that’s where networks and platforms come into play. Over the last decade, through platforms like LinkedIn, Facebook, and Twitter, we’ve gotten very good at sharing information about people and organizations, and creating real-time and increasingly granular maps – or graphs – of relationships, networks, information flows, etc.
Where we need even more innovation is in the realm of the so-called Internet of Things – i.e., objects and products that are connected to the web and potentially to each other. Because it is through greater and greater degrees of network intelligence that we can achieve the efficiencies that can boost resource productivity. For example, Tesla knows more about how its customers use its products than most car manufacturers, because Tesla cars send information back to the company about when, where, and how they’re being used (if owners consent to this functionality). In turn, such knowledge can help the company determine what improvements it can make to optimize future usage.
At Greylock, my colleague Josh Elman led an investment in a company called SmartThings that is developing a “physical graph” of the world through a platform that makes it easy to connect various household products to the web. Increasingly, we’ll be able to leverage the collective intelligence that a million connected refrigerators or thermostats can generate to seriously reduce energy loads (in addition to making everything more convenient and fun to use). In this environment, the opportunities for entrepreneurs and entrepreneurial thinking are endless.
Which is not to say that boosting resource productivity to meet the demands of the world’s rapidly expanding middle class will be easy. As Matt and Stefan suggest in their book, it will take long-range thinking and the right inputs from governments as well. Nor will every company out there embrace this challenge. But companies that proactively look for ways to deploy resources more intelligently can certainly help mitigate the strains that will come as the world’s middle class more than doubles in size over the next fifteen years.
Indeed, if we really want to stave off peak oil, peak water, and other instances of potential resource depletion, then we need to keep pushing closer and closer toward peak network.