The Future, This Week 15 December 2017

Introduction: This is The Future, This Week on Sydney Business Insights. I'm Sandra Peter and I'm Kai Riemer. Every week we get together and look at the news of the week, we discuss technology, the future of business, the weird and the wonderful, and things that change the world. Okay let's roll.

Kai: Today on The Future, This Week: the battle of the giants, what's up with Bitcoin and avocado innovation.

Sandra: I'm Sandra Peter the Director of Sydney Business Insights.

Kai: I'm Kai Riemer, professor at the Business School and leader of the Digital Disruption Research Group.

Sandra: So Kai, what happened in the future, this week.

Kai: Our first story comes from Slate dot com: "Welcome to the voice wars a petty spat between Amazon and Google could be the opening skirmish of tech's next big conflict". Now the article itself is about Amazon and Google being locked in a battle that is pretty visible in the media.

Sandra: So this week Google's move to block the users of Amazon's Fire TV and Echo Show devices from watching anything on YouTube.

Kai: They had previously removed the YouTube app from these platforms and Amazon had found a way around it by allowing access to the YouTube website. And Google now blocked that access as well. So why is that?

Sandra: Well what Google is claiming is that Amazon started this in the first place that this was really just the response to the fact that Amazon doesn't carry Google products like Chromecast or the Google home and doesn't make prime video available for Google cast users. And last month stopped selling altogether some of the Nest products in the Amazon stores. So this is just the response to that and that they're looking for reciprocity.

Kai: So it's a kindergarten style - if you block mine, I block yours kind of thing right.

Sandra: Exactly. So what this story really pointed to is that the Frightful Five the Big Five (Apple, Google, Amazon, Facebook, and Microsoft) are starting to compete really head to head with each other in certain ways and it's prompted us to try to take a closer look at where exactly are the battlefields.

Kai: And turns out there are a lot because those tech conglomerates are engaged in many different fields which incidentally overlap and so these companies compete in different ways so this article is about voice or really a part of a AI artificial intelligence which is supposed to become the next big platform which is voice assistance, a new kind of computing interface that you access via natural language.

Sandra: So the first battleground for the big 5 is around artificial intelligence - voice, things that have to do with autonomous vehicles, and things that have to do with advertising and the algorithms behind it.

Kai: So in the voice arena it's basically Amazon with its Alexa platform and Google Home, Google assistant, which are already on the market. But Microsoft has its own voice assistant Cortana and obviously Apple has Siri and Apple is about to release Homepod which will make available Siri in a speaker like device much like Google Home and Amazon's Echo devices.

Sandra: Then there are the moves in the autonomous vehicle space. Google obviously a very big player here.

Kai: So Google obviously with its subsidiary Waymo is very advanced in this space. They have their own cars, they're driving around, they're testing these vehicles. So they are pretty far progressed.

Sandra: And just a couple of days ago Apple's very secretive autonomous car project seemed to be picking up speed where even though back in April the companies received the permit to start driving autonomous cars in California. The CEO has now confirmed that they're working on software that would allow cars to, among other things, drive themselves.

Kai: Now and quite obviously in most of these battlegrounds where the five meet each other, there's often other parties as well. So self driving cars obviously contested by other parties such as Uber, Tesla or the Chinese company Baidu with its open source Apollo platform which they make available to any car manufacturer that wants to use this platform. So this is a pretty crowded space already.

Sandra: And then there are the big battles around advertising. Obviously this was a space where in the beginning Google was winning big time but now with Facebook coming in and actually using algorithmic advertising to its full extent we've seen some new developments.

Kai: Yes and we've discussed this quite a lot. This advertising works but it also has a lot of side effects so we've discussed at length the placement of racist or inappropriate content next to you know videos that are presented to children and the like. But these companies are still battling with an army of low paid staff to weed out the worst things. But by and large algorithmic advertising earns these company a lot of money.

Sandra: So the first big battle ground is artificial intelligence. The second big battleground we could see is the one around devices and this is really another place where these companies have started to fight things out outright.

Kai: So starting from an old battleground which is around computers, desktops and laptops which is obviously Microsoft and Apple contesting here with their operating systems and Apple with hardware as well and increasingly Microsoft with the surface laptops and tablets. And obviously this crosses over into tablets where we see Samsung coming in and then obviously Google again because they come in via their operating system Android where they are locked in a battle with IOS provided by Apple.

Sandra: Same thing with handsets with mobile phones. We've seen a space dominated by Apple with the iPhone but Google coming in now with the Pixel phone and all the developments after their acquisition of Motorola.

Kai: And Amazon plays a minor role with its fire devices which are obviously quite niche and geared towards linking to its retail platform. And again in this space others are coming in - so Samsung very big and a lot of smaller manufacturers so again a very contested space.

Sandra: Where we're also seeing emerging battles around the home. So the next space for skirmishes to erupt are around home automation. So we've seen Google coming in with Nest products and a whole range of sensors around the house.

Kai: So Apple has its own home kit platform so they build some devices. So Apple TV is the hub for home automation and then they team up with smaller manufacturers who all list home kit ready devices.

Sandra: Another battlefield is that of what you actually put on these devices so the battle around content and this has been a battle around things like ebooks, battle around apps, or a battle around music.

Kai: Videos, films, movies. So a whole lot of different things that you can stream into the home and to your mobile devices now. And quite obviously among the big five there's three locked in battle: Amazon with its Prime service, Google with Google Play and also YouTube, and obviously Apple with its iTunes and Apple music services. But then there's others that are coming in such as Spotify, Pandora, Netflix who are all competing in this space.

Sandra: So a fourth battleground that we've identified is around communication and messaging and indeed social media and chat apps.

Kai: So the two big players out of the five in social media are Microsoft and Facebook. Facebook for obvious reasons but Microsoft owns Yammer and also Linkedin. So they have slightly different positionings, so Microsoft obviously eyeing the enterprise users but Facebook has launched Facebook for work which is now known as Workplace. So they clash in this space.

Sandra: And obviously Facebook also owning WhatsApp, another big player in the field, and having managed to win the battle against Google and Google Plus which Google did try to fight it off in the social media space but unfortunately it lost that battle.

Kai: So we also should mention that Microsoft owns Skype these days so they go head to head in the messaging space with WhatsApp. And here Apple comes in with iMessage as well which is quite popular especially because it's encrypted. And then we have other players coming in such as Snap with Snapchat and then one of the Chinese giants Tencent with WeChat which is commonly known as a chat app in the west but has really grown into an all purpose platform.

Sandra: And actually wages battle against the big five on multiple fronts not just in the comms and the social but also across business and e-commerce around content and so on. So yeah we will see much more crossing over between the big three BAT (Baidu, Alibaba, Tencent) and the Frightful Five in the West. For example Tencent recently announced an equity swapping deal with Spotify so they're teaming up in that space so Tencent put its weight behind Spotify to go head to head with Amazon Prime and Apple Music.

Sandra: But speaking of chat apps and moves into business, businesses are actually the other really big battleground for the big five. And we've got two areas there - one is around cloud and cloud storage, cloud computing...

Kai: And there we have obviously Amazon with Amazon Web Services, Microsoft with its Azure platform and Google with Google Cloud.

Sandra: But there's also the office front which for many many years there was one dominant player in the market and that was Microsoft dominating the office space both in terms of hardware and software applications.

Kai: But obviously Google has made a lot of inroads here with Google Docs with its suite of applications has swayed many business users who are now using Google including Google mail instead of Microsoft Exchange servers.

Sandra: And Apple has made some inroads in this space as well through its hardware devices managing to enter some of the space.

Kai: But also here we're seeing new fronts forming: Amazon has recently announced to make available Alexia for business as a device that goes into meeting rooms and people's offices to fulfill certain tasks such as sending reminders or starting conference systems and obviously ordering office supplies. But really Amazon is fast encroaching on Microsoft's Office territory and the question is where's Cortana?

Sandra: Well she seems to be missing in action which brings us to more action on a different front and this is the e-commerce and web front where we see really large battles forming.

Kai: So first there's "search" which has been one of the oldest battles to be fought fairly and squarely won by Google but Microsoft doesn't seem to be giving up so they're still running their Bing search engine and having some success making it available on some mobile platforms.

Sandra: We're seeing niche wars won by Amazon where almost half of the product searches in the US for instance are done directly on Amazon rather than starting from Google.

Kai: And Amazon is the default search engine for any apps and products that are related to physical products, books and the like.

Sandra: But then there are two other big battles being fought in the e-commerce and web area that is retail and we're seeing Amazon pretty much owning the space.

Kai: Yeah but even here going back to the original Slate article makes the very interesting point that Google is now teaming up with Wal-Mart and much like Amazon's Echo makes available Amazon purchases, Google is now making available Walmart's online purchases through its Google home platform so a new alliance forming that brings Google into the retail space.

Sandra: Which brings us to our last head to head in the e-commerce and web area which is the area of payment. And here we've seen most players have a stake. We've seen Amazon with Amazon Payments, we've seen Google Wallet, we've seen Apple Pay come in.

Kai: But we also see other players again and here most prominently eBay which we've discussed a few weeks ago on the podcast with Paypal obviously being a big player in online payments.

Sandra: So to our forward-looking big battles to come before we finish the story we need to talk about the big battle for AR/VR.

Kai: Virtual reality and augmented reality where really all five of them are currently jockeying for position. Some of them quite established such as Google with Google Glass which you know in the consumer space hasn't seen much success but is now making inroads in business and industrial applications.

Sandra: Apple coming in with its AR Kit and we've spoken about this before on the podcast with the iPhone 10 and the ability to scan your face are now animate a wide variety of emojis.

Kai: And the potential to create and animate your own avatars. We see Facebook obviously with the acquisition of Oculus Rift, a very strong player in VR and so is Microsoft with its HoloLens platform.

Sandra: But since a couple of weeks ago even Amazon has put some skin in the game it has launched Amazon Sumerian a new platform for developers with basically little experience to develop and build and host AR or VR apps really quickly with very minimal coding experience.

Kai: And this again a space that is currently wide open with lots of start up activity and also some big Asian players such as HTC with its Vive platform, very strong in the VR space currently. So again this space is very much looking for a killer application that sort of thing that will carry this space forward and make it a lasting success.

Sandra: While some of these battles have the potential to bring us better products or cheaper services or more access there is also an unintended side effects, the unintended victims of these battles like in the case of this article people no longer having access to YouTube.

Kai: So as these battles play out the consumers might be collateral damage for a while. So looking forward at next year there's going to be a lot to talk about still.

Sandra: So to our second story and this is also something we will be talking about a lot next year and that is Bitcoin. We are finally talking about Bitcoin.

Kai: Yes we've been getting questions about where is Bitcoin on The Future, This Week? We haven't done it this year but we can no longer pretend ignorance.

Sandra: So our second story for today comes from...

Kai: And we could pick one from anywhere but this one is from...

Sandra: The Conversation and is titled..."The utopian currency Bitcoin is a potentially catastrophic energy guzzler". So before we talk about the potential catastrophic energy consumption involved in mining Bitcoin, let's first clarify what Bitcoin is and what do we mean by mining it.

Kai: So that's a hard question. What is Bitcoin? Is it a currency? Is it an asset? Is it a bubble? Is it a bunch of Dutch tulips? The jury is still out on what it is and will become but let's talk about how it works.

Sandra: So Bitcoin is the first and the biggest cryptocurrency out there. It's a decentralised, tradeable asset. We have no central authority and it goes back to a paper by Satoshi Nakamoto back in 2008 and we have no idea who this person or persons is or are. And it became important for a number of reasons. First it solved the double-spend problem and the problem of having trust in a decentralised network so remember there is no central authority in this network.

Kai: So it's deeply rooted in a cyberpunk, anarchistic ideology of not having to trust any authority, state or banks but more importantly it's based on a technological innovation that solves the problem that online you can basically copy stuff, you can copy MP3 files and then generate as many copies as you want of digital assets and with digital coins with digital money that is obviously a problem. So a solution had to be found so that a digital coin cannot be spent more than once and can be locked up or tied up in a ledger of transactions that is impossible to be tampered with. And this innovation is called Blockchain.

Sandra: So Blockchain and one of its incarnations, the Bitcoin, allows us to exchange value, these tokens, without relying on intermediaries that we traditionally rely on which are banks. So instead of having a bank to keep the records we have this in an ever expanding ledger that at all times records all the transactions in the whole history of all the Bitcoins ever in circulation. So any exchanges that were ever made will be encoded on the Blockchain.

Kai: And so this ever growing chain of blocks of data is held decentrally not by one party but by many parties at the same time.

Sandra: How does this work by mining?

Kai: And without going into the mathematical details, the way it works is that whenever a transaction happens people exchange Bitcoins, this transaction has to be added to the Blockchain by way of solving mathematical problems of ever increasing difficulty that lock so-called miners, companies/individuals who run computers that solve these problems, in an arms race. The point is that we increase the difficulty of solving these problems and adding these new blocks to the Blockchain so that no group of people can own the computing power to rehash or recreate the Blockchain to tamper with any blocks that are already on the chain and therefore fool the ledger.

Sandra: So what happens is really every 10 minutes or so all these mining computers collect hundreds of pending Bitcoin transactions, solve the mathematical puzzles and announce it to the rest of the network. In exchange for doing this they collect a...

Kai:...reward which is Bitcoins so in exchange for employing the computing power to create the new version of the Blockchain and therefore securing the transactions, these miners are awarded with Bitcoins which is the incentive to actually keep creating the Blockchain.

Sandra: Because of the computing power needed to do this and because of the increasing number of computers who are trying to solve this, clearly people have begun pooling computing power so you have ever bigger groups of miners who combine their power to make sure that they get the reward. In order to prevent miners from gaining the ability to control the Blockchain, what happens is that on average every couple of weeks the software readjusts the difficulty level to actually solve the mathematical puzzle.

Kai: So this has led to an arms race whereby in the early days of Bitcoin anyone in their dorm room could use computers to actually mine Bitcoins because it was relatively easy but these days mining is done exclusively by a few companies that are located in jurisdictions that have access to very cheap energy because mining Bitcoin is essentially converting energy electricity into Bitcoin so most of these companies if not all are now located in China, in Inner Mongolia, where access to energy is really cheap.

Sandra: So indeed Inner Mongolia has the cheapest electricity prices in the world it's about 4 cents per kilowatt.

Kai: And a recent article in IEEE SPECTRUM has delved into this world of Bitcoin mining and we will put the article in the show notes. It's definitely worth a read. And the person that went to have a look at these Bitcoin mining farms comes back with quite amazing stories of warehouses that solely hosts these now purpose built computers that have the one sole purpose of basically mining Bitcoin and they use up a lot of energy and they use up a lot of energy as a base load because these computers have to run constantly to create the Blockchain over and over again and put new Bitcoin transactions that people make around the world onto the ledger.

Sandra: So what you're ultimately doing is basically exchanging electricity for coins and in the middle you've just got a whole bunch of computing power.

Kai: Which brings us back to our original article. So the article makes the point that the amount of electricity that Bitcoin uses just to operate each day is mind boggling. The article says that assuming an electricity price of about five cents per kilowatt hour in places like Inner Mongolia and a Bitcoin price of say ten thousand US which today it's almost around 17000US. Yes that means that each Bitcoin consumes about 150 megawatt hours of electricity to mine each single new Bitcoin. Under current rules the setting for Bitcoin allow for mining of about eighteen hundred Bitcoins a day implying a daily use of 24 thousand megawatt hours on an annual rate of nearly a hundred terrawatt hours, about 0.3 percent of all global electricity use. By some estimates, Bitcoin uses as much energy as a country like Ireland or New Zealand. And the point here is that this is baseload energy that you need all the time so the article makes the point that Bitcoin is a strong incentives for places like China to have cheap coal fired power plants exactly the kind of things that in the face of climate change we want to shut down and switch off to keep those plants running for longer.

Sandra: So where does this leave us? And there are a couple of questions we want to ask before we wrap up this story. Where does this leave us in terms of having now a cryptocurrency that is worth almost 17000 dollars? Why is this? And what really is it because it does seem to be more a commodity rather than a currency. So Bitcoin seems to be a store of value but is it really a method of exchange? Is this something that we could establish prices on? And would you make any payments where you couldn't know from one day to the next given the volatility of Bitcoin what the value of your merchandise is?

Kai: Absolutely so it started out as a payment system but given the volatility and in recent days we've seen swings of 20 to 25 percent within a matter of a few hours, that makes it pretty unusable as a currency or as a payment system because you don't know what you get and by the time you send the money to someone else what they get.

Sandra: Also given how it's rising I have absolutely no incentive to pass on my Bitcoin but rather I have every incentive to keep and hang on to it.

Kai: So it has all the makings of a hype and the bubble at the moment.

Sandra: So it behaves a lot more like you would have tulip bulbs or indeed maybe even fine art not an asset backed value but rather a scarce resource. If we have a currency that is backed up by assets or by the economic power of the country issuing it that is not the case with Bitcoin which is rather high risks, speculative commodity at the moment so hype.

Kai: So if you know someone who has recently invested in Bitcoin or indeed you are someone who recently bought Bitcoin, this might sound familiar to you.

Audio: Guess who's in that cryptocurrency game boys? It's called Blockchain. You wouldn't get it. I've been doing this for three weeks so yeah I'm sort of an expert. God I knew this was a bubble. God I knew it. Up $500 baby, never a doubt. Oh no it's crashing. It's crashing. I'm seriously thinking about putting everything I got into it. Shit. No no no no. BEEP....

Sandra: So the question really to ask here is will Bitcoin endure? We know distributed ledger is a big technology that yes will change a lot of things and that's a conversation for another time. But will Bitcoin endure? And there are a few people speaking out against the hype. We've got the Vice President of the European Central Bank whose compared it to the tulip mania that broke out in 17th century Holland. We've got a Yale University's senior fellow Stephen Roach who used to be Morgan Stanley's Asia Chief who said this is a very dangerous speculative bubble by any shadow or stretch of the imagination and it's a toxic concept for any investors. And we have Nobel Prize winning economist Joseph Stiglitz.

Joseph Stiglitz Audio: Bitcoin today is expectations of what the Bitcoin is going to be tomorrow. If the government says look at...the reason Bitcoin is being used is this circumvention, they could close it down at any moment and then it collapses.

Kai: So Stiglitz is pointing to a few risks around Bitcoin. First and foremost there's the energy hunger. Given that the mathematical problem that underpins Bitcoin is getting exponentially more difficult, you will need exponentially more computing power. And with the rising prices it becomes more valuable to actually mine Bitcoin which means the energy hunger will rise exponentially. And while that might go on for a while adding to the climate problems this will eventually become economically un-viable. But there's other risks. For example most if not all of the miners are now located in Inner Mongolia. So if China decides tomorrow that it will outlaw Bitcoin because it has become too speculative and shuts down a few of those mining companies, Bitcoin will crash.

Sandra: There's also the fact that about a thousand people own 40 percent of all the Bitcoins in the world. And remember this is not a security which means that these people potentially could actually collude to move the prices and then to dump a lot of their stuff because there is actually no regulation around it.

Kai: And remember if the price of Bitcoin plummets significantly, mining Bitcoins for those miners will become uneconomical. And so once those miners stop mining there is not going to be any Bitcoin anymore. So those people who liken Bitcoin as an asset to gold should be reminded that if we switch the power off there is no Bitcoin.

Sandra: So things to look out for 2018: first is regulatory clarity. There is very little in terms of regulation in this space whether that is ICO trading, whether that is mining, whether that is taxes that you would pay on this. So regulatory clarity along a number of jurisdictions. Second of all seeing how actually Bitcoin is moving into traditional financial markets so futures for Bitcoin have started trading on CBOE and now professional investors can actually make investments in the space and already there are people like Thomas Peterffy from Interactive Brokers whose warned that Bitcoin derivatives could lead to something akin to a new financial crisis. So a lot of uncertainty and an area that we'll definitely keep an eye on in 2018.

Kai: So while Bitcoin is a hype right now and makes for good media and a nice spectacle, it is pretty unclear how exactly what innovation to the Bitcoin system is needed to make Bitcoin a success in the long run. Quite obviously the underlying technology Blockchain has lots of applications and we will definitely come back to this next year in various different contexts be it tracking identity, birth certificates or any other information where you have to be certain that it cannot be tampered with.

Sandra: But for now it's time for our last story of the week.

Kai: It's a short one, a sweet one, and a weird one. Now to the weird and the wonderful...

Sandra:...avocados.

Kai: So for some weird reason this story was also all over the media. Not quite as prominent as Bitcoin but for the story that it is it's got a fair bit of coverage so we picked a story from The Guardian titled "Marks and Spencer selling stoneless avocado that could cut out risk of injuries.

Sandra: Are avocado injuries a big thing?

Kai: Well apparently being a hipster is dangerous business. An increasing number of people apparently turn up in emergency rooms having cut their hands by trying to separate the avocado from its stone.

Sandra: So Marks and Spencers are now selling an avocado that has no pip. It's all flesh.

Kai: So this is basically an avocado that cannot propagate.

Sandra: So what do people think about it?

Audio: It's made me feel surprised I guess. Yeah. But then I'll probably just move on because you know life's too short. I've got other things to worry about. Like you know, cats on the internet what have you. But I'm glad that it exists I guess.

Sandra: So why do we care about avocados?

Kai: Because this is true innovation in the face of a growing public health hazard.

Sandra: And it allows us to talk about another avocado innovation that actually is making a difference.

Kai: Tattooing avocados. Apparently in the avocado supply chain a lot of paper is wasted on labels that are being stuck onto the avocado. So another innovation in the avocado supply chain has brought us tattoos for avocados.

Sandra: So what we're looking at is laser labelling. Things like a little logo or the best before date or the country of origin they will now be burned into the little skin of the avocado so this is like an ink free tattoo. And in the UK alone this will save, for one retail chain alone, will save about ten tons of labelling and the backing paper and about five tons of adhesive every single year for lasering rather than putting on the little stickers. So avoiding waste is a fantastic opportunity and we think labels better than stones?

Kai: Yeah. But it also puts Marks and Spencer and their innovation into a bit of a pickle because the new seedless avocado has a smooth edible skin not suitable for tattooing. So we leave you with that thought.

Sandra: And that's all we have time for today.

Kai: Thanks for listening.

Sandra: Thanks for listening.

Outro: This was The Future, This Week made awesome by the Sydney Business Insights team and members of the Digital Disruption Research Group. And every week right here with us our sound editor Megan Wedge who makes us sound good and keeps us honest. Our theme music is composed and played live from a set of garden hoses by Linsey Pollak. You can subscribe to this podcast on iTunes, SoundCloud, Stitcher or wherever you get your podcasts. You can follow us online, on Flipboard, Twitter, or sbi.sydney.edu.au. If you have any news that you want us to discuss please send them to sbi@sydney.edu.au.