To have a good understanding, we need to understand several factors:
Faster adoption of products and services
When we look at the levels of adoption of technology in recent times, we can observe that the time for new products and services to reach our lives is becoming increasingly shorter. While it took 64 years for airplanes to reach 50 million users, it only took 19 days for a small viral app like Pokémon Go.
The time to reach millions of users for a technology follows an exponential curve
One of the main reasons for this phenomenon is that we are more and more connected. Every time we decide to join a (social) network:
- The amount of connections we create is not only limited to a few people, but we usually connect with hundreds or even thousands of people. We don’t create a profile in a social network only to follow one person. This allows information to reach its destination much faster in a shorter time and to a greater number of people.
- The fact of having more and more people connected to a network increases the value of the network: No one would be using our favorite messaging app if our contacts weren’t using it too, and vice versa.
So, there is an exponential factor (Metcalfe´s law) in the number of connections when new people (nodes) join these networks.
Everything is likely to be digitalized
In the 20th century, a lot of effort and money was required to market a product to a global audience. The components of these products had to be extracted from nature, adequately manipulated, assembled in endless assembly lines, then distributed to different countries, and finally, they had to be sold. Besides, if they were sold as services, the support for these products during all their life cycle had to be provided as well.
However, nowadays everything is likely to become a bunch of lines of code (programs and data) executed on thousands of computers…
Most of you know Moore’s Law: the number of transistors in an integrated circuit doubles every 2 years. To put it simply, it may be concluded that the performance of computers follows a similar progression (at the moment any mobile phone in our pockets has a better performance than the computer on Apollo XI, which was used to send the first man to the Moon in 1969). This is one great example of an exponential progression.
When information is digitalized it is much easier to access, share, distribute and send it through the Internet at unbelievable speeds. The restrictions of the physical world no longer exist. And once a product can be represented by a series of zeroes and ones, it has the potential to become an exponential technology. It is due to the fact that the computers process those programs and data follow the same exponential progression in performance mentioned by Gordon Moore.
But how much does it cost?
But someone might think that by attaining twice the performance of a piece of technology compared to another one, its price would double, thus causing reticence to adapt it among customers. But just take a look at our phones; they are not exactly twice as expensive if our favorite phone brand promises to double their performance in the next new model compared to the last one… Curious, isn’t it?
According to Ray Kurzweil (1999), an exponential technology doubles its performance over a specific period of time while its cost is reduced by half (¡!).
- 3D printing (its cost has been reduced by 400 times in 7 years)
- Solar panels (the price was reduced 200 times in 20 years)
- Drones (reduced 42 times in 6 years)
and even the sequencing of a human genome: 16 years ago, its cost was $100M, while these days it costs just a bit more than $1,000.
The DNA sequencing cost follows also an exponential curve (even improving it)
Why they are so difficult to spot
The obvious question that arises is why companies (mainly with traditional business models) take such a long time to react to them. And this is not an easy question to answer.
Let’s imagine for a moment that our company uses a technology which a big part of our annual revenue depends on. Of course, we optimize it a bit every single year (as a general rule its gradual improvement tends to be much lower than 10% yearly).