The Australian: They are only just starting in the Valley of innovation

JUST about any company in Silicon Valley will dazzle you with stories of the change they have created.

It might be LinkedIn, the social media site for managers and professionals, talking about its network of more than 250 million members built over the past few years, including more than four million Australians.

Or eBay, describing the 500 million active listings on its online marketplace on any given day; or online education business Coursera, which has more than six million students worldwide after launching in 2012.

But my strongest impression from a recent visit to Silicon Valley — visiting individual companies and attending the Australian American Leadership Dialogue (AALD) meeting at Stanford University — is not the change we have already seen: it is the change this industry will deliver in the future.

That is partly because of the enormous scale of the IT industry, and the amount of money and effort companies deploy on new technology.

Google X, for example, is the unit of Google that works on what they call “moon shots” — huge problems, radical solutions and breakthrough technology.

One example is Google Glass: effectively a tiny smartphone mounted on a pair of glasses, with a miniature screen sitting just above and to the right of your normal line of sight. Trying this device out for a few minutes was a remarkable experience. A company with revenue of $50 billion and profits of $10bn can allocate serious resources.

It is also because of a collective confidence in this industry born from having successfully “disrupted” many industries in the past — be they encyclopedias, newspaper classified advertising or recruitment and executive search. That confidence is underpinning similarly disruptive entry in many industries.

Such disruption is great news for customers; but not such good news for existing industry players.

Square, for example, is re-designing the credit card industry to make it possible for millions of microbusinesses to accept credit cards. If the big banks do not catch up, they could lose a big chunk of business to this new provider.

Coursera is allowing millions of students to take courses online from well-known academics at Stanford and other prestigious universities (including Melbourne, UNSW and UWA). That is exciting for those students — but could mean less well-known universities may struggle to hold on to students.

A major driver of change is the rise and rise of mobile devices. Social media companies talk about the “mobile moment” when more than half of their traffic comes from customers on a smartphone or tablet, rather than a traditional laptop or desktop computer.

Another reason to believe even bigger change is coming: the large returns that big IT companies can get for innovation. With billions of potential customers worldwide, breakthroughs can generate rapid take-up and enormous profits.

Apple, for example, introduced the iPhone in 2007 and the iPad in 2010; only a few short years later these two products generate more than $125bn in annual revenue.

The size of the prize is driving huge effort and investment directed at transforming today’s business processes, based on several interlocking trends.

Mobility is one. Big data is another: gathering and manipulating massive quantities of data to identify trends and linkages that would previously have been obscured.

The eBay demonstration centre offered a good example: a retailer responding to orders placed online by a customer using a smartphone. The customer’s location can be provided to the retailer and combined with data in its inventory control systems to see if there is a store nearby which has the item in stock.

If so, after the customer places the order, she will receive a message on her smartphone saying the item can be collected immediately at the nearby store — rather than having to wait days for it to be delivered.

This gives the customer more options; but it also lets a retailer leverage its existing network of stores, manage its inventory better, and generate more customer traffic into its stores.

Three other themes from my visit reinforced a conclusion that ever-more change is coming.

The first is the drive, energy and brainpower of the people in Silicon Valley — seemingly from every industry and every country. The diversity of national backgrounds was evident in just about every meeting, including several Australians in business-critical roles at companies such as Facebook, Google and Square.

Two examples: Simon Zhang, a former Chinese neurosurgeon now working on big data for LinkedIn; and Sheryl Sandberg, a Harvard-trained economist and former chief of staff to US Treasury Secretary Larry Summers, who is Facebook chief operating officer.

The second theme is that building new applications, and starting new companies, is getting easier, not harder. As one Silicon Valley veteran said: “It takes less time and less money to start a new site than it did a decade ago.”

The third theme is the scale and depth of the Silicon Valley ecosystem for generating ideas, securing finance for an idea, implementing and testing, and either building to scale or discarding if it fails. A comment from one presenter made the point: “I was a regular hi-tech entrepreneur here in Silicon Valley: I started seven companies and only five failed.”

Multiply that story by thousands of people and you have an extraordinarily robust yet flexible system to drive innovation.

Of course, any such visit also raises the obvious question. What can we do in Australia to capture some of the same disruptive, innovative energy that characterises Silicon Valley? That is a question for another article.

Paul Fletcher is parliamentary secretary to the Minister for Communications in the Abbott government.