When economists and futurists comment on technological advancement, unemployment and inequality are usually mentioned as the primary negative consequences. But few talk about the early signs of deflation and the lowering of prices that will ease this economic transition. Technology introduces innovative business models that take away the cost for end consumers. Entrepreneurs are benefiting by removing friction from the customer experience, and money is the highest source of friction. The disruption that hit media and communications will make its way to other industries. When technology drives prices of most goods and services down, unemployment and lower incomes don’t sound like society’s greatest dangers anymore — people’s lives will still improve.
We’re in 2016 and the internet has completely changed the media and communications industry. Both the price of connecting with other people and that of consuming content have gone down to near-zero levels in the last 10 years. Messaging has moved away from telco control to the open internet. Social media is created and consumed for free by the crowd. For less than $50 per month, we use our smartphones for 6–8 hours per day to talk with other people and browse through news and entertainment content on applications like Skype, Whatsapp, Spotify, Netflix, Facebook, Google, Youtube and many free news magazines. The story of technology will continue. We are just today witnessing the spillover effect into other industries. There is a huge push by technologists to digitize and automate everything. As a result, the price of goods and services that were traditionally outside of the digital realm will go down significantly. Sectors that will be affected are many — financial services, energy, fashion and retail which represent 40% of GDP in developed countries are the most imminent.
Fintech is already here. London, New York and SF are buzzing with startups that hold ambitions of overcoming big banks and making wealth creation more accessible to the unbanked and under-priviliged. The startup Robinhood promises free trading while Bitcoin-based Abra can transfer money across the world without any fees. Blockchain, the decentralized public ledger of transactions that fuels every digital cryptocurrency, enables instant transfer of value and improved auditability. These two pillars will bring about affordability and efficiency to the future of finance. The cost of moving money, processing payments, and investing in markets will be eliminated because of better software and databases.
The price of producing solar energy fell down dramatically by more than 80% since 2009. Major solar farms are already generating power at a cheaper rate than any other production method. Nano-technology is poised to make solar panels more cost-efficient and speed up the reduction in their price. Because Solar power is a technology and not a scarce resource like oil, production costs will be near-zero and would be shared between people easily on a smart grid as needed. With funding close to double the size of fossil fuels and no signs of stopping, solar energy will soon become as ubiquitous and available as the internet. It will be used to power our smart electric cars, and along wind and hydro to power our buildings and our businesses.
Fashion is a $1.2 trillion global industry that is very likely to be affected by 3D printing technology. Consumers will be able to print their own clothes for free or for a small fee. While there are some issues today that hinder this trend from going mainstream, the 3D printing process will evolve to include better fabric that feels like real clothes. It will also become faster and cheaper to produce accessories, sunglasses, shirts and even full dresses with home printers. People will be able to download designs and customize them to their own style and measurements. 3D printing will also eliminate waste and leftover textile. The whole fashion value chain and manufacturing process will be disrupted and printers will become a one time cheap investment that churns out clothes to their owners for years.
Free delivery in e-commerce is today a basis on which users choose one platform over another. Users will soon expect free delivery on every online purchase and retailers should submit to this shift to stay competitive. Retail platform Amazon has already eliminated retail prices by not having physical stores and have significantly reduced inventory costs. Today, Amazon is using big data to match supply with demand to further reduce costs while enhancing the user experience. At the same time, Amazon Prime has a promise to deliver anything to you in one day for less than $100 per year and has bundled the service with media streaming services. We can only imagine prices going even lower when the industrial internet of things make supply chains more cost-efficient, when autonomous cars and delivery drones become the norm in transportation, and when Amazon manufacturing vehicles can 3D print your purchases on route to delivery.
Technology is also making its way into home appliances, buildings and even human bodies through smart sensors and connected nano devices, and there is no possible way to imagine all the long-term consequences on consumers. The coming revolution described here will complicate how businesses capture value, therefore questions arise regarding the business models of the future. It can be said that the internet applications of today create much more value for society than they extract from it by facilitating knowledge, communications, and helping people come together — but they do still make profit margins. Today’s internet services are running on a small-fee subscription model or are monetized with ads to be kept free for consumers. However, this model might not hold for other industries. Advertising cannot sustain the internet of things. There is no doubt that VCs investing in the future are looking for profit opportunities, but they should know that costs may not be passed on to customers and that there is a dire need for business model innovation. This holds especially true if people become unemployable because of the same technological forces that lead the change towards low prices, and start demanding more free stuff themselves.