The best ideas of 2012 from the new economy

The next, next big idea: efficient data centers
The next, next big idea: efficient data centers
Image: Google
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1. The last-second economy

In an era of cell phones, pop-up restaurants and flash mobs, consumers act more spontaneously, and make fewer plans, a phenomenon venture capitalist James Slavet calls the last-second economy. Instant gratification is why Amazon ditched its 15-year war against state sales tax, opening local fulfillment centers in 40 states; analysts now expect Amazon to deliver most two-day shipments in one day, and here in Seattle, it’s often just one afternoon.

What’s even more interesting is how this is changing the service economy. It turns out that among the last of Steve Jobs’s accomplishments may have been the invention of a device that real estate agents, cable installers, taxi-cab drivers and bicycle messengers willingly carry around day and night, telling us their location.

Grindr, the service for hooking up with the nearest guy, originally pioneered the idea of using a mobile device to broadcast your location. Now Uber has taken the same approach for town-car drivers. What’s most revolutionary about Uber is not the tool that consumers use, but the fact that the only equipment needed by its drivers is their iPhone. Redfin is developing a variant of the idea to show which of America’s 500,000 real estate agents are near the listing you want to tour.

In each case, these companies are using iPhones to track people the way Costco or Walmart uses radio-frequency identifiers, known as RFID, to track widgets across their entire supply chain and delivery network. Load-balancing techniques originally developed to decide which computer shows you a web page can also decide which agent shows you a house. Over the next few years, America’s service economy will deliver services far more efficiently, on far shorter notice.

2. Can’t buy me likes…

2012 was the year we learned that Facebook and Twitter can’t always control their own medium. As social networks turned the screws to lift revenues, some users revolted—in Facebook’s case over the idea that someone’s Instagram pictures might be used in a company’s ad—and some advertisers struggled to see a return on their investment. General Motors ended its $10 million Facebook ad campaign, concluding that social media users listen to one another, not advertisers.

Making money from a social network with hundreds of millions of participants is a problem that Twitter and Facebook will solve, but in the meantime their troubles have been good for the rest of us: more than ever, customers not advertisers determine what products other people find out about.

As a result, startups can topple incumbents more quickly, but only by delivering a service so good everyone wants to talk about it. If you build a better mouse-trap, regardless of your marketing budget, the world will beat its own path to the your door. In 2012, the best designers, engineers, writers and artists no longer had to work for big brands to get on a big stage. This is why, without any advertising campaigns, women started wearing fly-fishing lures in their hair, and men embraced the canvas slip-on shoes favored by Argentinian polo players.

3. The hacker way

With Facebook’s IPO, the world learned a new way of organizing businesses around one overriding imperative: to ship new products quickly. This started with software designed to be re-designed mid-flight, so that any team can quickly test a change on Facebook’s live site with a few thousand users, and no single change can cause the whole site to fail. Ultimately, this bloomed into a culture of risk-taking and restlessness called the Hacker Way.

This approach is why Facebook has moved so much faster than Google, which is much more careful about the quality of its engineers’ code. Now executives in old-school businesses, as far north as the Arctic Circle, are trying to learn how to hack their own businesses, lowering the cost of failure so that it is less than the cost of avoiding failure: why argue about whether an idea can work if you can more easily and quickly just try it out?

The hacker way will be why large groups of people can work together faster and take more risks than ever before. It’s why business is getting less stodgy and more fun.

4. The hybrid business

After a decade in which Silicon Valley has become a hit-driven media business, consumer internet companies are undergoing a crisis of confidence. Rather than driving another big rally, Facebook’s stock has fallen 28% since its May debut. While Facebook’s stock will recover over time, the unexpected pressure on its earnings has sent a clear message across the Valley as investors realize that ad-driven businesses often have to reach more than 100 million people to generate significant profits. Few companies can do that.

Now some software entrepreneurs aren’t just running pure media companies like Facebook, which makes its money from advertising; there has been a renaissance in enterprise software companies, which sell software to real-world businesses. But a new trend has also emerged, in which software companies are themselves real-world businesses.

One of Twitter’s main architects left to form a bank called Bank Simple; Redfin was created by software entrepreneurs to be a real estate broker with its own local real estate agents; Climate Corporation is a bunch of Google engineers who use a weather-predicting algorithm to insure farmers against frozen oranges; American Giant can afford to make hoodies in California because it sells them over the Internet.

In each case, the software entrepreneurs could have been arms dealers, making software for banks, brokers, insurance companies and clothing manufacturers run by someone else. Instead, the entrepreneurs chose to be the bank, the broker, or the insurance company. A decade from now, these businesses may have a better opportunity to be independent multi-billion companies than most pure software startups.

5. The return of hardware

The silicon is back in Silicon Valley: 2012 has been the year of hardware. Microsoft and Amazon bet their companies on building tablets. And startups are rising to the challenge too. From the Pebble wristwatch to the Lytro camera, the Square credit-card reader and the Nest thermostat, entrepreneurs everywhere aren’t just coding from the couch; they’re soldering in the garage.

Interestingly enough, it’s not just the hardware companies that are making hardware. Many consumer internet companies, even some small ones, are building their own super-fast computers, looking for an edge in the Big Data arms race to grind millions of records about which coffeemaker you’re most likely to buy, all in milliseconds.

What’s most encouraging is that some hardware will be manufactured in the US: only months after Steve Jobs dismissively explained to President Obama why America could never cut it as an iPhone manufacturer, Apple announced that by 2013 many of its computers will be made here. GE is now doing the same with smart refrigerators.

This is a boon not just for American jobs, but for American ingenuity: as former Intel CEO Andy Grove argued years ago, you can’t figure out how to make something better if you aren’t the one making it at all. When designers and engineers work under one roof, America can make better products.

6. Slow investing

Why not, as an investor famously asked in 2008, “back 10 teams at $25,000 each instead of one team at $250,000?” Another investor took this proposition to its logical extreme, launching a fund called “500 Startups.” As hardware costs have declined, and the odds of picking a successful startup grew longer, venture capitalists began to distribute their time and money more widely.

But now, some investors are limiting the number of investments they make to give young entrepreneurs more mentorship. The world’s most successful startup development program, Y Combinator, just reduced next year’s class size, promising to dedicate more time to fewer companies.

The argument by influential Facebook investor Peter Thiel, that some startups aren’t doing anything difficult or disruptive at all, seems to be encouraging other investors to make fewer, bigger bets. Slow investing can have the same impact on startups that slow food has had on cuisine: good things come to those who wait.

Slow investing isn’t a broad trend yet, but it is a significant change: once we stop looking for startups doing something fast and easy, we might hit upon something lasting and big.

7. Hacking education, educating hackers

In 2012, Silicon Valley stopped complaining about the shortage of educated talent and started doing something about it. Microsoft is sending software engineers into high school classrooms. A spin-out of Amazon engineers, Vittana, just raised money to support a wildly successful micro-finance site for funding education in developing countries. Universities launched the first large-scale massive open online courses on everything from math and cyptography to finance or a crash course in creativity.

A less-noticed trend is that online programs like Cloud9, Koding and Codeacademy are letting anyone learn to program a computer, with almost no equipment or special software. There is plenty of skepticism about whether every man, woman and child can or should really be learning how to code, but we can still be glad to see that more people than ever before will have the opportunity. After all, if you could buy futures in any commodity that will be in short supply over the next decade, it would probably be coders.

8. Immigration reform

With November’s election, a debate that seemed unlikely to be resolved for decades ended almost overnight: Republicans and Democrats alike agreed to pursue immigration reform. There are plenty of devils left in the details, but some kind of reform is probably on the horizon.

This is welcome news for Silicon Valley, which has long campaigned for a startup visa that allows entrepreneurs who can raise money to stay in the US.

After all, the reason the US has better startups than anywhere else isn’t because we have better education or better infrastructure, it’s because we attract better talent. No one who moves to India or China believes she can raise capital or build a team as a foreigner. But she can in the US.

One in four tech-powered startups are founded or co-founded by an immigrant; these businesses alone employ 450,000 people per year. And this doesn’t even account for the grittiest of entrepreneurs, the ones who start with nothing but a lawn mower or a gypsy cab; almost all of these folks are immigrants. Hopefully we can persuade more of them to come here.

9. The green cloud

Far away, in rural towns on big rivers, giant data centers chug away to let you send email and browse the web. Collectively, they consume about 5% of America’s power, as much as the entire city of Seattle uses each year, with 90% of it wasted. A groundbreaking story by the New York Times found that a single data center uses more power than a medium-sized town, and many appear on government lists of toxic air contaminators.

The attention will do the industry good. My neighbor came out of a dot-com retirement to work on top-secret energy-efficient mass storage devices. A friend who runs engineering for a cloud-based software company toured the world in search of energy-efficient data centers. His favorite day at work this year was standing in the blast of a giant air intake, which uses Ireland’s winter weather to cool servers that otherwise would have required fans and air conditioners.