We know we’re living in the next generation’s history book. We just don’t know the name of the chapter… yet.
It’s hard to see past the fog of the moment amidst all of the conflicting daily updates.
Right now, it feels like our world is falling apart. But when future commentators look back, they’ll see the world that emerged more than the one that was lost. The ups and downs that obsess us now will be smoothed out by time.
As someone who teaches mental models, I study trends, cycles, learning curves, and the lessons of history for a living. I’ve deliberately tried to rise above the noise and think from a larger historical perspective. To do so, I’ve studied several books which discuss past economic collapses, technological cycles, and pandemics. I also helped co-create the largest list of second-order effects of the coronavirus.
The reason I spent hundreds of hours reflecting is to get above the noise and uncertainty in order to make important decisions that will impact me and my community for years to come and to help you do the same. We’re at a turning point collectively and individually. I believe that the people who shape the future will be the ones who most deeply understand the present.
By the end of this article, you’ll have the equivalent of night vision goggles in the darkness and fog of this moment and into the future.
With that said, I believe when future generations look back on this moment, they will call it…
The Great Digitization
The actual coronavirus is a catalyst rather than the main event. Instead of primarily creating a new reality, the pandemic accelerates the more significant trends toward digitization. We see this trend in more people working from home, more people learning online, growth of e-commerce and deliveries, and increased job loss due to automation.
We’re seeing industries, processes, and companies that have held back digitization suddenly become digitized because the law, employees, and/or customers are demanding it.
Digitization is the process whereby we turn physical things into digital bits. Digitization is almost always underestimated because the first step is so innocuous…
- Turning a physical product into a digital product (a physical book into an ebook, a CD into an MP3)
- Turning a physical process into a digital process (working from the office vs. work from home, paying in person vs. paying online)
Not much changes at first. Companies keep the same processes, org chart, and workflow except employees work remotely, for example.
However, don’t be fooled. Because, ultimately, digitization always leads to complete and utter transformation of everything it touches. Governments. Industries. Business models. Careers. Our day-to-day lives.
For example, 25 years ago, most people bought music as CD albums in retail stores and listened to it on CD players. Today, most people access music digitally on an unlimited basis via subscription and listen via their smartphone.
Not only that, now we’re even seeing song choruses broken down into clips and used as soundtracks for hundreds of millions of videos created by TikTok users.
So now we understand that digitization reinvents whatever it touches, a new question arises…
How will digitization reinvent knowledge work?
Imagine a world where one person could create an article that is read by billions of people in days or design an app that is worth a billion in weeks. Or someone who could become a fashion mogul overnight by uploading their designs for people to 3D print.
This is where high-level knowledge work is going, and we can already see harbingers of this shift. One song has 7 billion views just on YouTube. One podcaster was able to license his catalog for $100 million. One app with just 13 employees was sold for a billion dollars.
For many people the idea of digitization is familiar and perhaps obvious. However, few have actually taken the time to understand its second-order and third-order effects. What many call digitization is just inning one of a nine-inning ball game. To succeed in the future, it’s important to better understand what innings 2-9 look like. And, even more important, to understand how to thrive in those innings and know where the “opportunity windows” are. That’s what this article is about.
If we can understand how digitization unfolds, we can see into the future. Although we may not know the specifics of who, what, when and where, we can know digitization’s direction. And by knowing the direction, we can skate to where the puck is going, putting ourselves in a position to “score.”
Fortunately, digitization is a process that has been happening in some industries for decades, so we can look back and notice patterns rather than guess.
What we can now say for sure is that what’s required to succeed in the digital world isn’t the same as the physical world. The world of digitization has new laws of physics, which require a completely different way of acting and thinking.
Stanford researcher, W Brian Arthur, one of the world’s leading experts on the implications of digitization, captures the situation in a classic Harvard Business Review article…
These two worlds operate under different economic principles. [The physical world] is characterized by planning, control, and hierarchy. It is a world of materials, of processing, of optimization. The increasing-returns world [digital world] is characterized by observation, positioning, flattened organizations, missions, teams, and cunning. It is a world of psychology, of cognition, of adaptation…
The two worlds (increasing returns vs. diminishing returns) have different economics. They differ in behavior, style, and culture. They call for different management techniques, strategies, and codes of government regulation…
Success goes to those who have the vision to foresee, to imagine, what shapes these next games will take.
While there are many implications, I chose to simplify them down to the three largest ones that all knowledge workers need to know…
- Creators will be the new wealthy. The “execution” needed to turn an idea into reality drastically diminishes. In addition, many middlemen are removed. Therefore, the relative value of creativity and skills increases.
- Knowledge will be the new money. Digitization leads to dematerialization and demonetization of physical matter and to the increased value and fungibility of knowledge.
- The value of being great will skyrocket. Digitization creates global winner-take-most markets. As a result, the blockbuster effect becomes even stronger. Simultaneously, being good enough is no longer good enough.
For the rest of the article, I will unpack each of these…
#1: Creators Will Be the New Wealthy
When many people think of the word “creator” they have two connotations:
In the digital singularity, the new word connotations will be:
Creators will be the new wealthy for a few reasons…
First, digitization removes middlemen.
In other words, it reduces the relative importance of manufacturers, publishers, distributors, suppliers, wholesalers, and retailers and empowers platforms and creators.
This happens because, in a digital world the product doesn’t need to be physically manufactured, stored, or shipped. Rather, it only needs to be created and then sold.
This pattern was first noticed in the computer industry by the founder of Acer, Stan Shih, and it’s called the smiling curve. The big idea of the smiling curve is that the two players that capture most of the value in a digital value chain are those focused on creating new intellectual property and those marketing the value of that intellectual property to customers and servicing customers.
With digitization, the curve now looks more like the chart below…
Platforms are companies like Netflix, Apple, Google, Facebook, and Amazon. Platforms aggregate suppliers (i.e., movies, tv shows, apps, websites, products) and then create an interface for creators to reach those customers. Many of the largest companies in the world are platforms.
Creators can reach customers directly or through platforms. They are anybody who uses digital skills and creativity to create an idea or product. Below are a few examples…
Secondly, It’s easier than ever for creators to get started.
Creators no longer need permission to create. They don’t need to convince editors, publishers, wholesalers, or retailers to work with them. Instead, they can now focus on the customer.
In addition, creators don’t need to raise money or be wealthy in order to create. The tools available for creators are growing cheaper, more numerous, and more useful.
The shifts to no longer needing money and permission are really important, because when you look back at history, these were the main limiters. Now, the main limiters are the skills and creativity of creators.
For example, forty years ago, if I wanted to write an article, I had to submit it to a newspaper or magazine to get published. So, I needed their permission. If I wanted to publish it myself, I had to hire a printer and pay for shipping in order to get each magazine read.
Third, today’s creators get analytics on their customers, which helps them learn faster.
Digitization leads to new sources of data, which can be your competitive advantage.
In the past when I wanted to improve at writing, I looked at articles and books by “so-called experts.” Many of these experts were not world-class, and many of them shared techniques that had worked for them at one time and place, but didn’t reflect the global best practices.
In 2013, I realized that there was a better way to fast expertise.
When I started writing for Forbes, I was looking for ways to quickly improve my writing. I had no list and no brand. And, I didn’t want my writing to disappear into the Internet ether like 99.9999% of content.
Around this time, I came across Buzzsumo, which provides access to the meta-data on 900M+ articles.
This meta-data includes the following which can be exported into a spreadsheet and analyzed…
- # Shares
- Publish Date
I immediately saw the opportunity. Rather than having to guess what spread online or rely on the advice of others, I could see for myself.
So, I spent hundreds of hours doing two things…
- Analyzing patterns and testing them. (Over the years, my team and I have tested 4,000+ titles)
- Finding authors who were consistently writing viral articles and paying for their coaching and consulting. Having data allowed me to specifically find people who were successful because of skill, not because of luck (one hit wonders).
In addition, as an online writer, I also get access to analytics on my own articles. While this may not sound like a big thing, it is when you compare it to a newspaper writer from the past who would get no data on their article’s performance and what resonated. Now, all online creators get this data.
These two data shifts accelerated my learning curve for online writing by 10x. As a result, within a few years, my average article online attracted 150,000+ views.
Finally, creators are antifragile.
Creators are what Nassim Taleb calls “antifragile.” People who are antifragile actually become stronger with uncertainty and stressors rather than weaker.
Most people are employees who sell their time for a “reliable” salary. Their risk is getting fired and losing potential income for a period of time. While employees have reduced risk in the short-term, their gains are capped by their salary.
Then there is the entrepreneur. The entrepreneur takes on more risk with both their time and money in return for potentially larger gains. But all businesses are not created equal, some have both higher risk and low potential upside than employees. Taleb gives an example in a Tweet…
Restaurants are concave. Limited upside, larger downside (like short volatility). Mega-fragile to events and circumstances; nonportable and illiquid.
What makes creators unique is that they have limited cost and huge upsides. The cost is typically the cost of software to operate the business, their cost of living, and their time to develop and use their skills. In addition, the creator can typically operate from anywhere. The rewards, if their idea is a hit, are huge.
Let me give you a counterintuitive example to drive home the surprising power of the modern creator and how the definition of a creator is changing.
Let’s say you were a chef. In the past, if you wanted to get your food to market, you’d have to open a restaurant. This meant you’d have to find the right space, take out a huge loan, perhaps find investors, design the space, and hire a staff. Much of your time would need to be focused on managing the business rather than creatively exploring and testing recipes. In fact, most restaurants barely test out new recipes.
Today, there is the advent of cloud kitchens and online ordering.
When someone orders online, you get data on who they are and what they ordered. This allows you to understand your customer, target them better in your advertising, and create personalized recommendations.
When ordering moves online, location matters less. The customer never sees the store. So rather than having to locate in expensive, high-traffic areas, chefs can locate in low-rent areas. Furthermore, rather than having to hire waiters and waitresses, they can just hire kitchen staff. They need less space because they don’t have a dining room.
Finally, a whole new type of company is emerging that helps chefs—cloud kitchens. Cloud kitchens offer chefs commercial kitchens located in low-rent spaces that are ready to move into. So, a chef today only has to worry about:
- Leasing a cloud kitchen (much less hassle than leasing, staffing, and furnishing a dining room)
- Creating a menu (and iterating it based off of feedback)
In other words, the chef needs less money to start and can focus his or her time on creating the best menu possible. Because the chef can see demand trends, they can quickly axe items from their menu. Furthermore, they can explore opening new types of “restaurants” (Mexican instead of sushi) by simply creating a new brand and menu.
#2: Knowledge Is the New Money
“Intellectual capital will always trump financial capital.” — Paul Tudor Jones, self-made billionaire entrepreneur, investor, and philanthropist
We spend our lives collecting, spending, lusting after, and worrying about money — in fact, when we say we “don’t have time” to learn something new, it’s usually because we are feverishly devoting our time to earning money via our job, but something is happening right now that’s changing the relationship between money and knowledge.
We are at the beginning of a period of what renowned futurist Peter Diamandis calls rapid demonetization, in which technology is rendering previously expensive products or services much cheaper — or even free.
This chart from Diamandis’ book Abundance shows how we’ve demonetized $900,000 worth of products and services you might have purchased between 1969 and 1989.
This demonetization will accelerate in the future. Automated vehicle fleets will eliminate one of our biggest purchases: a car. Virtual reality will make expensive experiences, such as going to a concert or playing golf, instantly available at much lower cost. While the difference between reality and virtual reality is almost incomparable at the moment, the rate of improvement of VR is exponential.
While education and health care costs have risen, innovation in these fields will likely lead to eventual demonetization as well. Many higher educational institutions, for example, have legacy costs to support multiple layers of hierarchy and to upkeep their campuses. Newer institutions are finding ways to dramatically lower costs by offering their services exclusively online, focusing only on training for in-demand, high-paying skills, or having employers who recruit students subsidize the cost of tuition.
Finally, new devices and technologies, such as CRISPR, the XPrize Tricorder, better diagnostics via artificial intelligence, and reduced cost of genomic sequencing will revolutionize the healthcare system. These technologies and other ones like them will dramatically lower the average cost of healthcare by focusing on prevention rather than cure and management.
While goods and services are becoming demonetized, knowledge is becoming increasingly valuable.
“The central event of the twentieth century is the overthrow of matter. In technology, economics, and the politics of nations, wealth in the form of physical resources is steadily declining in value and significance. The powers of mind are everywhere ascendant over the brute force of things.” —George Gilder (technology thinker)
Perhaps the best example of the rising value of certain forms of knowledge is the self-driving car industry. Sebastian Thrun, founder of Google X and Google’s self-driving car team, gives the example of Uber paying $700 million for Otto, a six-month-old company with 70 employees, and of GM spending $1 billion on their acquisition of Cruise. He concludes that in this industry, “The going rate for talent these days is $10 million.”
That’s $10 million per skilled worker, and while that’s the most stunning example, it’s not just true for incredibly rare and lucrative technical skills. People who identify skills needed for future jobs — e.g., data analyst, product designer, physical therapist — and quickly learn them are poised to win.
Those who work really hard throughout their career but don’t take time out of their schedule to constantly learn will be the new “at-risk” group. They risk remaining stuck on the bottom rung of global competition, and they risk losing their jobs to automation, just as blue-collar workers did between 2000 and 2010 when robots replaced 85 percent of manufacturing jobs. I explain this phenomenon more in 5-Hour Rule: If you’re not spending 5 hours per week learning, you’re being irresponsible.
In short, we can see how at a fundamental level knowledge is gradually becoming its own important and unique form of currency. In other words, knowledge is the new money. Similar to money, knowledge often serves as a medium of exchange and store of value.
But, unlike money, when you use knowledge or give it away, you don’t lose it. In fact, it’s the opposite. The more you give away knowledge, the more you:
- Remember it
- Understand it
- Connect it to other ideas in your head
- Build your identity as a role model for that knowledge
Transferring knowledge anywhere in the world is free and instant. Its value compounds over time faster than money. It can be converted into many things, including things that money can’t buy, such as authentic relationships and high levels of subjective well-being. It helps you accomplish your goals faster and better. It’s fun to acquire. It makes your brain work better. It expands your vocabulary, making you a better communicator. It helps you think bigger and beyond your circumstances. It connects you to communities of people you didn’t even know existed. It puts your life in perspective by essentially helping you live many lives in one life through other people’s experiences and wisdom.
If you want to learn more about turning learning into a deliberate habit, I recommend reading my article, The No. 1 Lifelong Habit Of Warren Buffett: The 5-Hour Rule.
#3: The Blockbuster Method Is Your Solution To Winner-Take-All Impact Of Digitization
Digital markets 10x the Matthew Effect of the rich getting richer.
This happens for a few reasons…
First, in a world with limited attention, people will choose the best option available to them.
Therefore, in your career, your main strategy should be to become the best or close to the best in your niche. The companies, employees, influencers and entrepreneurs that succeed will be those who have a strategy to be the superstar or create the blockbuster product and then work backwards from there.
I first learned about the power of the blockbuster approach when I read the research of Harvard professor, Anita Elberse, and wrote about it in The #1 Mental Model For Writers Who Want To Create High-Quality, Viral Content.
shows that blockbuster content is receiving a larger percentage of the attention pie than ever in all entertainment categories including publishing, TV, music, sports, movies, comedy, and opera: “Our research also showed that success is concentrated in ever fewer best-selling titles at the head of the distribution curve.”
Increasingly, the top media companies are focusing on fewer, high-quality titles and those titles are monopolizing attention and being enjoyed more.
The early pioneers of the Internet thought that it would be a great democratizer. That it would spread out attention across infinite niches. This idea was known as the “long tail.” Thirty years later, the Internet appears to be the greatest centralizer in human history.
As time goes by, I’ve come to believe in the power of the blockbuster more and more in my own business. And, I’ve come to see its importance across any industry that is touched by digitization.
For the past seven years, I’ve been laser-focused on creating blockbuster content, even though I started from no list, no brand, and little writing experience. Choosing a blockbuster strategy worked better than I imagined. The articles I’ve written have been viewed tens of millions of times in publications like Forbes, Business Insider, Entrepreneur, Inc., Fortune, TIME, and the Harvard Business Review.
If you can combine your skills and creativity to create blockbusters, you can attract billions of views/dollars and change the behavior or mindset of billions of people— very rapidly.
I explain how to create blockbuster content in Blockbuster: The #1 Mental Model For Writers Who Want To Create High-Quality, Viral Content.
On the other end of the spectrum, there is what economists call over-crowding.
For every rock star, there are many thousands of “wannabes.” The focus on relative performance and resulting asymmetric payoffs tend to draw into the competitive field more contestants than may be warranted on any rational calculation of benefits and the probability of winning. All of this leads to “tragedy of the commons” in that too many also-rans depress the per-capita compensation for them. Frank and Cook point to a variety of causes of overcrowding, such as overconfidence; thrill-seeking; status-seeking, or intrinsic joy in the activity.
Overcrowding and winner-take-most mean that being just good enough is no longer good enough.
Second, digitization leads to global markets. Bigger markets mean bigger hits.
200 years ago, if you were the best musician, the only way you could scale is by traveling to new locations by horseback and delivering live performances. 50 years ago, your song would have had to be encoded on to a tape, duplicated, and then shipped around the world at significant cost. Now, with digital markets, it is not uncommon for a hit to be listened to hundreds of millions of times in a matter of weeks or even days. Hits are transmitted digitally and globally instantly and at zero cost to the creator.
Third, digital markets are still growing very rapidly. So, hits will keep getting bigger.
Only 59% of the world population is connected to the Internet. With companies like Internet.org, Loon, Starlink, and other initiatives, the entire Earth will be blanketed with low cost internet in the next 10 years. Thus, the winning songs, software, movies, articles, and books will win even bigger in the future. Furthermore, the United Nations estimates, that the world population will grow to 8.5B by 2030 from 7.6B today. To put those numbers in context, that’s about 300M+ Internet users per year. Finally, cultural barriers could be removed as there’s increasingly more English speakers, reducing the friction for ideas to spread globally. Ultimately, bigger markets mean bigger hits.
In summary, to fully take advantage of the great digitization, knowledge workers can do a few things.
- Become a creator
- Specialize in fields that are digitized or about to be digitized
- Structure your compensation so you’re paid for creative output rather than your time
- Build a rare and valuable skill set by following the 5-hour rule.
- Use your creativity and skills to create blockbuster ideas.
And, to end, I leave you with this…
How We All Can Thrive in The Great Digitization
Like the ghost of Christmas Future in A Christmas Carol, we have been shown our future. The coronavirus and the resulting economic shock are our stress test.
When you look back several years from now, how well you fared the pandemic will be a telling indicator as pointed out by Nassim Taleb in the following quote…
How you did in this pandemic, as a country, a village, a business, a group, or an individual, whether emotionally, economically, or morally, is an indication of how robust you are and how fit you will be for the next decades.” —Nassim Taleb
The good news is that we have time to prepare. The bad news is that we don’t have a lot.
In the next decade, we will likely see cashier-less physical stores, autonomous vehicles, and automated robot factories and warehouses all go mainstream.
These innovations will destroy tens of millions of jobs. Like Ebenezer Scrooge seeing into the future and learning no one cares when he dies, that is the gloomy part.
But, like Scrooge, we can come back from the future and change our behavior in the present. That’s the more cheerful news.
Will you be ready?