Technology, the dragon slayer

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Calixto Chikiamco 081417


Companies that don’t have a digital strategy are toast.

Perhaps I should amend that: companies that don’t embrace technological change face extinction.

Radical statement, you might say? Recently, Ford, Inc., the motoring giant, ousted its CEO, Mark Fields, even though he had presided over Ford’s record growth in profits in 2015. The reason? Ford hasn’t embraced technological change fast enough. It risks being left far behind when the industry will be dominated by electric vehicles and self-driving cars. General Motors and Nissan have leapt out of the gate with fully electric cars. Tesla, the electric vehicle car maker whose market value exceeds that of the traditional car makers like Ford and GM, is grappling with a sweet problem: it can’t manufacture the Tesla Model 3 cars fast enough. Meantime, other players, such as Google and Uber, are coming out with their versions of autonomous cars and trucks. With their expertise in software, they are threatening to relegate traditional car makers to commodity producers, just as Microsoft did with the PC manufacturers.

Furthermore, with self-driving cars, will commuters still buy cars or just rely on car-sharing services?

However, car makers aren’t the only ones facing an existential threat. Sparkplug companies, oil filter suppliers, and yes, oil producers will see falling demand when the car industry shifts to electric cars. These changes will have geo-political implications, as oil producing nations Saudi Arabia and Russia, will see even radically reduced demand. Where then will that leave our OFWs in the Middle East?

On the other hand, it would seem that real estate would be immune to technological changes. Not so. While the mall building boom is still on fire here, in many places in the United States, some malls have become ghost towns, with consumers buying more and more online and shunning malls. In Singapore, the shift to e-commerce has also hurt the mall owners, with a number of spaces being boarded up.

Mall owners here are beginning to realize this, although most have taken defensive positions. Ayala bought fashion site Zalora for its back-end expertise while SM bought into Dennis Uy’s Chelsea Logistics. Probably the theory is that if e-commerce takes off in the Philippines, e-commerce sites would still need logistics firms to fulfill customers’ orders.

On the other hand, SM and Ayala are trying to reposition their malls as more than shopping destinations. Malls are where families go for entertainment, get health checkups, apply for passports, or simply hang around like in a park.

Incumbents, which are hoping that laws and regulations can help them fend off competition empowered by technology, will have another think coming. For example, the Constitution restricts mass media ownership strictly to Filipinos. However, the mass media behemoth now is Facebook, sucking up most advertising money with content that it doesn’t even pay for.

Perhaps this is the reason why the Prietos decided to sell Philippine Daily Inquirer to billionaire SMC Chief Ramon Ang. President Duterte’s rants and threats against the owners of PDI may have been a factor in the their decision to divest, but probably, not the fundamental reason. The fact is the media landscape is changing rapidly with new technologies. People are increasingly consuming content on their digital devices like tablets and phones, rather than on print. The story of change, disruption, and sale is playing out all over the world. In the United States, the storied Washington Post, which had been owned by the Graham family for generations, has been sold to the richest man in the world (briefly), Amazon founder, Jeff Bezos.

Similarly, the telco duopoly — PLDT-Smart and Globe Telecom — can’t be sure that the Constitutional restrictions and their control of spectrum — will shield them from competition forever. For one thing, the political situation has changed — in the Sulong Conference sponsored by the Department of Finance held last Aug. 8 to consult with businessmen and civil society leaders, a major demand of the Conference was for a third telecommunications player. Moreover, President Duterte just passed a Public Internet Law that mandates free public Wi-Fi in public spaces. This means that a user can get free Wi-Fi instead of using up his load to connect.

However, a bigger thing is that technology may erode the duopoly’s dominant position. Broadband may become more ubiquitous, thanks to non-mobile technologies — satellite, microwave dish, and yes, balloons. Because of technological developments and the presence of satellites with the Philippines as their footprint, satellite broadband may be able to provide Internet connection in our archipelagic country far cheaper than fiber or mobile. In Sri Lanka, a Google-sponsored project aims to deliver Internet through balloons.

Whereas mobile technologies won’t go away, telcos will have to compete with these technologies. In fact, a mobile phone is connected to Wi-Fi by default, rather than mobile broadband, so the more ubiquitous and cheaper Wi-Fi becomes,the more telcos will see their data revenue fall. In the United States, the phone giant, Verizon, seeing the handwriting on the wall, has been acquiring Internet companies, such as Yahoo and AOL, in order to pivot to a different business model in the future.

The scary thing for CEOs is that no matter how much they are aware of new technologies, they can still get blindsided. Just look at camera companies. Who would have thought that Canon’s biggest competitor would be the iPhone? Neither did the GPS companies like Garmin think the smartphone would be a competitor.

New technologies are today’s dragon slayer. New technologies help curb the abuses of rent-seekers and monopolists, if not entirely disrupt them.

The only monopoly that seems immune to technological developments is government as a provider of public services. Public transportation, the administration of justice, the maintenance of peace and order, transport regulation, and other public services are as bad as ever. Can we ever hope for a technological fix?

Calixto V. Chikiamco is a board director of the Institute for Development and Econometric Analysis.


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