Why they don’t teach this wealth secret at school

Did you learn anything valuable about money at school?

Money management? Risk? Approaches to investing your hard earned savings?

I know I didn’t. And unless you were lucky, I’m guessing neither did you.

Don’t you think that’s a bit strange?

Money is such a massive part of life. I don’t mean seeking riches – though that is a part of life for many people. I just mean managing your money. Making good choices. Knowing your options. Coming up with a plan and sticking to it.

It’s something we all need to figure out sooner or later. I remember when I started my first job I met with the pensions advisor for the company plan. His message was pretty stark: I needed £1m in savings by the time I was retired, if I wanted to sustain a decent standard of living.

The best way of doing that? He gave me some advice. It has stuck with me thanks to his strange choice of words. I needed to pursue ‘suicidally’ risky investments.

That was a bit of an eye opener.

Over time I think I’ve come to understand what he meant. Risk isn’t a bad thing. We’re taught to fear it (perhaps that starts at school). But we shouldn’t. So long as we understand the risks we’re taking, there’s no need to fear risk at all.

In fact, every great investment opportunity involves risk. Sometimes a lot of it. The key part is knowing what that risk is and making sure the potential returns are worth it. Time horizons play a part in that. If you have a 45 year horizon – as I did when meeting that advisor – then your relationship with risk is very different to someone on the brink of retirement.

By the way, more or less every major mistake I see people make with their money comes down to how they perceive risk. They either don’t take enough of it… or they take too much. The worst cases are when people start to consider something a “sure thing” – and invest far too much capital into it. That’s dangerous.

And it gets worse. We’re not taught a lot about money and investing. And most of what we are taught often turns out to be 100% incorrect.

Let me give you an example. What if I told you that there was a unifying force behind many of the world’s greatest investment fortunes – a hidden connection that has created more wealth and prosperity for more people than anything else in the world…

…and yet virtually any economist would tell you it’s a bad thing. A terrible thing, even. Something to be feared and fought off.

It’s true. We’re taught to fear deflation – falling prices – as if it’s fifth horseman of the apocalypse. Mainstream economic thinking tells you that falling prices destroy wealth. As proof of that, simply listen to the Bank of England, with a little added emphasis from me:

Imagine a world where the price of things kept going down… sounds great, right? This is called ‘deflation’. But it’s not all it’s cracked up to be.

What would you do if you knew the £100 bike you wanted to buy today, was going to be reduced to £90 tomorrow? You would probably wait to buy it for the cheaper price. When prices begin to fall, people expect they will continue to go down. This expectation results in people spending less today, in hope of buying at a cheaper price tomorrow. This is bad for businesses.

If prices fall, businesses are likely to make less profit. Businesses don’t like to see their profits fall, so they will try to do something about it. Let’s go back to that bike you wanted to buy. The owner of the bike shop is now getting £10 less for each bike and so may try to cut costs to make up for this loss.

This is where deflation can negatively affect employees. Business’ biggest cost is usually staff. To reduce staff costs, businesses have two options: to cut wages or staff numbers. In other words, deflation could lead to you losing your job.

If you’re interested, there’s a reason mainstream economists and central bankers push the theory that deflation is bad – because it helps them present its opposite (inflation) as good. Inflation is a central banker’s (and indebted government’s) best friend. It allows you to rob savers of their purchasing power without them realising.

But exploring that idea is beyond the scope of this report.

Instead, let me ask you this.

If deflation is so bad, why have many of the most profitable innovations in history been deflationary? I’ll skip to the end: because falling pricesare more often than not the engine of rapid wealth creation. Many of the greatest investors and innovators in history have understood this.

Of course, very few of them were economists. They were entrepreneurs, inventors, visionaries and risk takers – people who were daring enough to challenge conventional thinking.

I’ll offer you three examples of what I mean to prove my point.

Henry Ford’s genius wasn’t engineering. He didn’t invent the car. He found a way to radically reduce the price of one. That was his secret: falling prices.

Consider… in 1907 a Ford car cost $600. By 1921 it had more than halved, to just $269. As Ford himself put it, “I will build a motor car for the great multitude. It will be so low in price that no man will be unable to own one.”

Or how about Andrew Carnegie?

Everyone knows Carnegie built a steel empire that made him the richest man in the world in the 1800s. But very few people understand how a poor Scottish immigrant generated such enormous wealth so rapidly.

Here’s the answer: Carnegie took advantage of a new industrial technique called the Bessemer Process.

In short, this technique radically reduced the price of steel. Before it, a tonne of steel cost £40. Afterwards it cost just £6.

Carnegie used this technique to halve the cost of industrial steel in a little under two years. Soon, Carnegie was so wealthy he was able to give away the modern equivalent of $65 billion.

Fast forward to the modern day. Why are Facebook, Apple, Amazon, Netflix and Google worth more than $4 trillion combined?

The exact same principle. Thanks to Moore’s Law, the cost of computing power has collapsed by 99.9% since 1971.

This is the real reason technology companies have created so much wealth. Falling prices are the engine of rapid wealth creation. Drive the price of something down far enough and eventually you’ll hit a “tipping point” that creates an enormous market… and incredible wealth.

The unifying thread is falling prices. Deflation. The exact thing that economists will tell you is the wealth-destroying force to be feared above all else.

So how can you apply that to your next stock pick?

A Common Mistake: Will your children thank you for this – or blame you?

Every month I buy a fistful of silver coins for my eighteen-month-old son.

Not as toys. For starters, he’d try and eat them. But as he gets older and starts to have some concept of money – or perhaps treasure – I’m going to show the ever-increasing stash with him.

As of December I’ll have to double how much I buy. We have another boy on the way then. I intend to take the same approach: buying physical gold and silver as a kind of savings account.

My wife thinks I’m a little mad. She’d rather we just set up a standing order into a savings account. I’m not against this. But gold and silver have two major benefits. One financial, one much more important.

In a financial sense, this is money the kids won’t be able to actually spend for roughly two decades. I think interest rates will remain below inflation for a lot of that time, destroying the value of cash savings. And my biggest fear is a full blown currency crisis, which would smash savers.

Gold and silver are an antidote to that. They’re the only things I trust to hold their value – at the very least – over that time period.

But more importantly they’re real. Tactile. You can hold them in your hand. I think that’s important. Particularly when teaching young children about what money “is” and as a physical representation of saving. The pile gets bigger every month. You can watch it grow.

It occurred to me last week, though, that I might be making a mistake.

Gold and silver are a great base. But there are other things out there that could make a much more significant difference to my family. Maybe I’m not shooting high enough. Maybe I should be aiming for more.

I’m not a millionaire. But could I make my children that well off, given the right moves today?

That’s what I want to explore. I think I have an idea for how I’d do it. To explain what it is I need to take you back in time.

Let’s turn the clocks back three decades. It’s 1989. The world stands on the cusp of extraordinary change, brought about by improvements in technology.

The engine of what is to come is actually a very simple idea. Computing power is doubling every eighteen months. Put another way, the cost of computing power halves in the same time period.

This simple idea, known to history as Moore’s Law, is about to turn the world on its head.

It’ll lead to the emergence of the internet… the personal computer… the decoding of the genome… the smartphone… social media… and disrupt virtually every industry on the planet while doing so.

Not only that, it’ll help forge some of the greatest fortunes in the world. It’ll spawn a generation of businesses built entirely around the ever-increasing-power of the microprocessor. Hardware companies will emerge to build out the infrastructure. Software companies will follow them, tapping that bandwidth to build enormous business empires.

Companies that don’t even exist in 1989 will, within a generation, supplant the energy, banking and industrial giants that have dominated the 20th century. Companies like Microsoft. Intel. Amazon. Apple. Google. Facebook. By the way, those six companies are worth roughly a combined $4.3 trillion today.

Why?

That’s an easy one. Each of those businesses tapped into the exponential growth in computing power. Their business models and practices may have differed beyond that.

But ultimately they all prospered by attaching themselves to an exponential trend… and clinging on as it triggered radical change and rapid wealth creation.

Here’s a harder question: why did so few people – beyond a few visionaries – see that coming?

I can look to my own family. I was born in the 1980s. My parents saved money for my future (in a savings account at our local building society, not in the form of gold and silver). But for whatever reason they didn’t choose to invest anything. Certainly not in anything high tech. (Unless they’re secretly fabulously wealthy and have been keeping it from me.)

I think I know why that is. It’s a common mistake. I think I’m guilty of making it. Maybe you are too. It’s something I don’t think my children would forgive me for.

The mistake? Underestimating exponential growth. Or rather, not comprehending just how rapidly exponential growth can change the world.

Our brains aren’t wired to think exponentially. We think in linear terms. This makes perfect sense. Most things don’t grow exponentially. Most of what we observe in the world is incremental. Cars don’t increase their efficiency or range as technology improves. Food prices don’t decrease like the price of technology. Clothing, energy prices, transport, housing. It all increases or decreases incrementally, not exponentially.

Mistaking one for the other can be a terrible error. Particularly when you look at opportunities missed in the financial markets.

Not every tech company has become a world dominating giant. Exponential growth is not a guarantee of success. But those companies that do succeed can – over the medium to long term – grow faster than almost anything else out there.

Put simply, hitching a ride on an exponential growth trend could be the best way of generating extraordinary wealth long term. But most people don’t do this. They think incrementally, not exponentially.

To understand why that is, let’s do a thought experiment.

Find a piece of A4 or A5 paper. Now, holding that sheet of paper in your hand, answer me this: If you were to fold it precisely in half five times in a row, how thick would the resulting wedge of paper be?

(Of course, you could fold the paper yourself and then measure it with a ruler. But try to resist the temptation. This is all about mental perception.)

Any guesses?

Well, folding the paper five times wouldn’t result in a very thick wedge. It’d be less than 1cm thick. Now, how thick would the wedge be if you folded the paper in half 42 times?

A metre?

Ten metres?

A hundred? Surprisingly, the resulting wedge of paper would stretch 380,000 kilometres into the sky – enough to reach the moon. Fold the paper 50 times and it’d reach the sun. Fold it 100 times and it’d be wider than the entire known universe.

How close did you get?

If you were within 10,000 miles you’re well ahead of most people. The reason is simple. This is exponential growth – a repeated doubling. And the simple fact is, the vast majority of people find it almost impossible to comprehend the scale and speed of exponential growth. We might each have the most powerful supercomputer in the universe whirring away between our ears, but we find it incredibly hard to visualise and anticipate just how rapidly the exponential function alters the world.

The reason for that is that we’re conditioned to think in terms of “linear” growth. That is, we look at how big something is now compared to, say, last year or last month, and tend to draw our conclusions from that. My house is worth 12% more than last year. My wage has grown 2%. The stock market is up 5% this year. This is how we view the world. It’s how we’re conditioned to think.

In the investment world we’re constantly told that past performance has no relationship to the future, but the fact is, it’s part of being human to base our view of the future on our most recent experiences.

The problem our brains have with it is that we find it near impossible to perceive the early stages of it.

Let’s say the piece of paper we were folding was 0.01 cm thick. We fold it in half; it doubles to 0.02 cm. A tiny amount. We fold again: 0.04 cm. Again: 0.08 cm. We’re talking about miniscule amounts of growth here. Mark them on a chart and they essentially all look like zero. And that’s how our brains see them – as growing at what appears to be an incredibly slow rate.

But it won’t stay like that for long. Once we break the “whole number” barrier (ie, we reach 1 cm), we’re only twenty doublings away from a millionfold improvement. We’re only 30 doublings from a billion.

If we were to map this growth out on a chart, it’d essentially be a long, flat line for a very long time, before a sudden explosion upwards on the right hand side of the chart. This is sometimes called the “knee” of the curve. It’s the point where things go vertical.

In investment terms, it’s the point where vast sums of money change hands…

All of the evidence we have points towards rapid and accelerating technological progress. That might scare some people. It makes some people want it not to happen. That’s because we’re almost conditioned not to expect change. The idea of it scares us. Our mission is to help you understand, anticipate and get on the right side of radical change. 

And we’re still seeing exponential growth trends in the technology sector today. I actually spent the best part of a year meeting with some of the most important people within these exponential trends whilst writing my book, aptly called The Exponentialist.

Which exponential technology trends will reshape the world in the next 20 years? Based on today’s trends and the accelerated rate of progress, it is not hard to imagine a world built around quantum computing, 3D printing, genetic editing, super-powered artificial intelligence, nano-technology, and even fusion energy.

If you scoff at those predictions, just think of the pace of change we’ve seen in the last three decades. Now remember that exponential growth means we could see a similar magnitude of change in the future compressed into an even shorter time period.

I can’t predict precisely which businesses will dominate those new industries. But I can predict how my family will respond when I tell them I chose gold and silver over exponential growth.

Gold and silver may be real wealth. Real money. And they will likely hold their value long term.

But neither are exposed to exponential growth trends. Will my children blame me for making that mistake? The same mistake people have made throughout the last 30-odd years?

Or will they thank me for seeing what most people don’t – that exponential growth is the most powerful force in the world – and tapping it may well be the secret to generating extraordinary wealth…?

‘Exponential’ Thinking: “Uh, sure…”

Here’s one that’ll make you wince. Take a look at this, taken from a Newsweek piece in 1995:

Visionaries see a future of telecommuting workers, interactive libraries and multimedia classrooms… Commerce and business will shift from offices and malls to networks and modems…

Baloney… The truth is no online database will replace your daily newspaper…

Nicholas Negroponte, director of the MIT Media Lab, predicts that we’ll soon buy books and newspapers straight over the Internet. Uh, sure…

Then there’s cyberbusiness. We’re promised instant catalog shopping—just point and click for great deals. We’ll order airline tickets over the network, make restaurant reservations and negotiate sales contracts. Stores will become obsolete. So how come my local mall does more business in an afternoon than the entire Internet handles in a month?

Is there any better way of understanding how people underestimate exponential trends than the phrase “we’ll soon buy books and newspapers straight over the Internet. Uh, sure…”?

The irony, of course, that in 1995 the direct, observable evidence that the internet/personal computing revolution would change the world was pretty flimsy.

Most people didn’t have email. Most had never even been on the internet. Those that did spent more time waiting for things to load via crappy dial up connections than anything else. On the basis of those experiences then such scorn of ‘cyberbusiness’ is reasonable.

Reasonable, but totally wrong.

So wrong that 25 years later people like me use quotes like that to make a point about how blind people are to major change.

Why is that?

On one level, I think it ties back in with a point I made earlier in this report. Our brains aren’t wired to understand exponential growth. We see incremental growth instead. And therefore we underestimate exponential growth until it is too late.

There’s more than that though. On a deeper level our brains aren’t particularly good at anticipating any form of radical change. We assume that yesterday, today and tomorrow will all be broadly the same. Most of the time this is exactly the case. We want to live in a stable, predictable world. And we apply this desire when we think about the future. This is known as ‘normalcy bias’.

The problem is this blinds us to the fact that – while there may be very little change between today and tomorrow – there will almost certainly be utterly transformative change over the longer term.

This is a fact of life. Compare the world today to that of 2009, 1999 and 1989. Consider the changes seen in that period. You could not use the terms ‘stable’ or ‘predictable’ to describe that time horizon.

To varying degrees, some combination of normalcy bias and an inability to understand the power of exponential growth account for the “Uh, sure” reaction to predictions of radical change.

That could lead not just to looking stupid, but to missing out on life-changing investment opportunities. Radical change in the world can drive radical, rapid wealth creation.

Which is why you’re reading this report, I’m guessing.

Here’s what it comes down to. Succeeding as an investor involves understanding what is going to change in the world and what is not going to change.

This requires you to identify the ‘agent’ of that change. Identify it and you can understand it. Understand it and you can try and predict it. Predict it correctly and you can profit from it. Depending on how right you are – and your time horizons – those profits could be extraordinary.

Which, by the way, is exactly what Southbank Investment Research (the publishers of Exponential Investor) exists to help you do. To help you become the master of mega change – not at its mercy.

Let’s look at the last 20 years. Some things have changed. Some haven’t. Between 1990 and today, the fundamentals of how we live our lives haven’t changed, but the methods, technology and businesses that supply the things we want have completely changed.

That’s because five major industries have been disrupted by exponential technology. A big part of this is the internet. But really the change goes much deeper. The exponential trend in computing speeds, known as Moore’s Law, has rewritten the laws of business.

Amazon sells the same products as high street shops…

But charges far less, provides anything you like without you leaving the house and gives you more choice. That’s because Amazon created an exponential disruption in the retail market.

Another example: Netflix provides TV series and films, just like Blockbuster did in the 1990s. But it gives you more choice and is much cheaper. That’s because of the exponential disruption to the entertainment industry.

The people we talk to and what we say to each other hasn’t changed. But instead of writing letters, making expensive long distance phone calls or looking businesses up in the Yellow Pages… we can now communicate instantly with each other and with businesses we’re interested in, for free.

Uber provides transportation, just like black cabs did in the 1990s. The difference? Instead of standing outside in the cold hoping to hail a cab, then paying out your nose for a driver who spent two years training in “The Knowledge”, the driver pulls up within a couple of minutes. They have your destination programmed into their maps app and get you there just as quickly for a fraction of the price, all paid through the app so no haggling or cash required.

You get the picture.

Now layer in the financial side. How much money could you have made by seeing just one of these changes coming ahead of time?

Take Amazon. In 1997 – the “Uh, sure” period – you could picked up a share for less than $2. It now trades $1,833. Roughly speaking that’s 900 times your money. Not bad.

There were bumps on the road. And there were no guarantees of success. But I’m going to stick my neck out and say that 900 times your money is an “exponential” return, i.e. one worth pursuing with some long term capital.

Another example to underline the point. Netflix may be falling out of fashion now. But a decade ago one share of the business cost less than $5. Today shares trade at $290 (having traded as high as $395).

Not bad. Now think on this. How many stocks do you hold that tap into an exponential trend? I’m not suggesting every stock you own should. But I think if you want to generate big long term returns, some corner of your portfolio should be dedicated to the exponential not the incremental.

So where should you be looking?

Let’s bring all the threads of the argument together, shall we?

See, I told you earlier that falling prices have been the key to an extraordinary amount of rapid wealth creation. But there’s a connection between exponential growth and falling prices.

For instance, Moore’s Law – an exponential trend – has increased computing speeds. But its real power has been the unseen side of that: a relentless reduction in the price of computing power.

It’s the merging of two insanely powerful wealth creating forces: exponential growth and falling prices.

And it’s still changing the world today…

Cheapskate millionaires

“It’s here!” I shouted.

Never has a package caused such excitement upon its arrival to Southbank HQ.

Excitement on my part, that is. The unlucky staff who’re forced to sit near my desk stared at me blankly.

On the desk in front of me was a fairly nondescript looking cardboard box. It had been stuck in customs for weeks. It’d been sent to the office from a small business in America.

I opened it. The first thing I saw was a set of test tubes. Then a pipette. Small plastic jars for keeping medical samples came next.

As I unpacked the box, people started to pay attention.

More test tubes. Glass beakers. Small vials of carefully labelled chemicals. Actually, let me just show you exactly what was in there. Here’s a picture:

I’ll give you one guess as to what was in the box.

Here’s a couple of clues.

  • It contained a type of technology that’s been described as granting “God like power” to humanity.
  • It cost roughly $150.
  • I bought it over the internet.

Any guesses? I’ll put you out of your misery. It was a home-gene editing kit.

I’ll pause here for a second to let those words sink in. Home. Gene. Editing.

Bought over the internet. For $150.

It’s a real life example of the power of exponential growth trends. And its very existence is proof that exponential growth isn’t done changing the world yet. I’ll come back to this in a second.

I’m going to use it as a case study, in an effort to convince you of a counter-intuitive idea about how to spot exponential growth opportunities. My theory is if you understand this idea you’ll have a much better shot of spotting the next big 100-bagging exponential growth trend. Let’s see if I’m right.

Getting this idea requires a paradigm shift in the way you think.

Here’s why: say the words ‘exponential growth’ to most people and what’s the first thing they think of?

My guess is it’d be something like this chart:

Source: Milford Asset

It’s the image that ‘defines’ exponential growth for most people. It’s the way we’re taught to think about it. The long, steady grind followed by the explosive vertical leap higher.

It makes sense. This is the way exponential growth is usually represented. It also neatly describes the ‘narrative’ of human progress.

That’s what the chart above really is. Ironically, it’s not actually one exponential growth trend at all. But it tells the story of accelerating growth.

But today I want to flip it. I want to talk its sister insight. It’s hidden right there in that chart. Accelerating growth comes hand in hand with collapsing costs.

That isn’t as sexy an idea. Instead of the vertical ramp up on the right hand side of the chart (which in a financial sense makes us all think of accelerating profits), we get the vertiginous collapse downward.

We get a trend accelerating downwards, not up. But that’s critical. Why?

Because it is falling prices that creates huge commercial markets – not increasing speed. It’s just we’re conditioned to see bigger and faster as ‘good’ and cheaper and smaller as ‘bad’. But that’s not the case.

Every great capitalist breakthrough led to low prices for the consumer. Lower prices lead to bigger, deeper markets. The faster prices fall the quicker the market will grow. Bigger markets create extraordinary profits for any business that can monopolise them.

To point out the obvious: accelerating growth and collapsing costs are two sides of the same coin. Computing processing power doubles roughly every two years. This means its cost halves in the same time.

I’m arguing that second statement is far more important when it comes to commercial success. It’s what leads to widespread adoption and mass markets. Put another way: the secret to tapping exponential growth opportunities is to find businesses driving the cost of their product down.

Making new technology cheap and accessible is what generates real fortunes. Not increasing power.

Back to my strange cardboard box. The very fact I can buy a rudimentary gene editing kit on the internet for a hundred quid should tell you something. It’s not designed for human gene editing I should point out. But it won’t be long before it is.

Wind those trends on. Extrapolate. Anticipate. Imagine a world in which gene editing technology can be acquired for less than £50 on the internet. It may send a shiver down your spine. Or it may not. But the trends in place today point towards that world…

Let’s take a step back from gene editing. How about just gene sequencing. Not changing your genes – just understanding them more fully. It’s a market that most people aren’t a ‘part’ of yet. I’m guessing less than 1% of the people reading this report have had their genome sequenced.

But for how long?

How long before it’ll be the other way around – until 99% of people will have their genomes sequenced as a matter of course?

That is almost entirely a function of cost. Collapsing cost. The price has to fall hard and fast. That expands the size of the potential market. That in turn creates opportunity.

The cost of sequencing genes is collapsing, by the way. Take a look at this chart:

Source: National Human Genome Research Institute

It’s a chart that predicts the future, if you’re open to the idea. A future in which gene sequencing and editing becomes commonplace. Cheap. Easy.

Most people aren’t open to that idea, as I’ve explained in previous chapters. I know there are plenty of people reading this that will give that prediction the “Uh, yeah…” treatment.

But understand the dynamics of collapsing cost and you can see what’s coming. What put a phoneline in every home? A car on every drive? A computer at every desk? A smartphone in every pocket?

The history of capitalism is illuminated by entrepreneurs who made a killing by making products cheap and accessible to mass markets.

Cheap is good. Don’t forget that. Look for collapsing costs. They’re the real cornerstone of rapid wealth creation.

Your invoice from Google

How much have you paid for your Google use this month?

How about Facebook? Twitter? WhatsApp? Email account?

Unless you’re getting a very raw deal indeed, your answer to those questions will be the same as mine. Nothing. Zero.

Which is the secret, isn’t it? The secret to enormous scale and extraordinary wealth. Drive your costs down. All the way to zero, if you can.

It’s a business model many of the biggest tech firms have used to grow and dominate new markets in the last twenty years. It connects to the point I made in chapter four: the real secret to exponential growth opportunities is collapsing cost.

We’re used to seeing exponential growth as something like increasing computing power. But really, it’s the simultaneous reduction in costs that leads to real wealth.

Here’s the paradigm as I see it.

Exponential advances create new possibilities – they push the frontiers of what is possible wider and wider.

But collapsing costs are what create new commercial markets – and opportunities for investors.

I’ll use two charts to demonstrate that point. Both concern the field of genetics in one way or another. The first chart represents the rapid growth of new papers on gene editing being published…

Source: ResearchGate

This is frontier pushing stuff. It’s research: by definition it is out there on the bleeding edge. It doesn’t directly create a new consumer or commercial market. Not today.

Cost is different. Here’s the price of sequencing a human genome. I showed you this in the last chapter but it’s important so I’ll share it again.

This isn’t particularly bleeding edge. It likely won’t lead to an extraordinary breakthrough. But it will create new and growing commercial markets. There’s a price at which it becomes viable for everyone to have their genome sequenced. That creates a very deep market for businesses to tap. And therein lies the investment opportunity.

Here’s a crazy thought: the price of mass adoption may be free. It may even be better than free. We may be paid to have our genomes sequenced. The cost could collapse so far that it becomes viable for a firm to waive the cost in order to build out the market.

This is precisely what we’ve seen happen with major social media firms.

The ‘Three Ds’ of exponential disruption

It’s part of the ‘Three Ds’ of exponential disruption. Once costs start collapsing at an exponential rate three important things happen. In order, these are: Demonetization, Dematerialization, and Democratization.

Three technical words like that won’t help my readability statistics. So let me explain.

Those three terms effective describe what happens to a technology on its path to mass adoption (and disruption of existing business models).

Demonetization: a technology decreases in price so rapidly it becomes free. You cease to see it as something you need to pay for: see Google, Skype, Whatsapp, etc, for more.

Dematerialization: the technology is consumed within other products. Where’s your camera gone? It has ‘dematerialised’ – disappeared within your phone. Many ‘apps’ you’ll find on your phone adhere to the same principle.

Democratization: steps one and two allow for widespread adoption. Everyone can access the technology. It’s free and easy to use for all. Thus the market is at its absolute broadest.

This is the path many technology firms have walked on their way to commercial behemoth status. Not everything has fit the pattern perfectly (for instance, a smartphone isn’t free, but is cheap enough to be ‘democratised’ in the West and contains lots of ‘dematerialised’ other technology within it). But in a broad sense this is what’s happening.

As I’ve shown you in this report, I think genetic sequencing – and ultimately editing – will be another industry to walk this path in the coming years.

Expect it to go from a bit ‘out there’ to be sequenced… to commonplace. Expect the technology involved to be consumed by other tech. Expect the price to be… free. At least.

What other technologies fit the pattern?

Well, 5G springs to mind. It’s rolling out now, as we speak. That process will start slow. But in the blink of an eye it’ll be everywhere.

I saw recently that in the US a $10 add on with one provider enables customers to access 5G – a 10 to 100 increase on existing speeds and latency.

Read that back. $10… for a 100 increase. That’s a massive reduction in the cost of accessing supercharged internet.

Now, a prediction: that $10 fee will disappear. Soon it’ll be effectively ‘free’ to access 5G. Then it’ll be less than a 4G connection today costs.

One day… perhaps it’ll be free. A public convenience. Mass adoption.

May sound silly. But it’s collapsing cost that drives market growth. And here’s how the 5G market is expected to grow in the coming years… a 6,000%+ increase:

Source: Statista

Until next time,

Nick O’Connor
Publisher, Exponential Investor

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