Cordelia

Technology: It’s not a widget, it’s a wave.

The BBC began transmitting digital radio in September 1995; 9 years later about 400,000 digital radios have been sold in a market of 24 million homes. So has digital radio failed or succeeded?

It’s an interesting question, because as radio moves from analogue to digital, so the economics of the industry change. Digital technology lowers costs, barriers to entry fall, more frequencies become available, it’s cheaper to start new radio stations, and each new service nibbles away at the audience. Advertising money gets more thinly spread across more stations, and some of the commercial stations you know will thrive and some famous ones will fail.

The ones that succeed will be those who are the first to realise that their historic analogue cost base will not be supported by the new digital economics. I use radio as an example but it applies to any management facing a fundamental change in economics wrought by technology: when do you say to your shareholders, “Our cash cow is about to go to the great dividend in the sky, and we are moving into cash gerbils”?

It’s always a question of timing, and most of us would prefer to stay in denial rather than make that tough business gamble on a new direction. We say things like “you can’t bet on technology”, “you don’t know what is going to win”, “if it’s going to work”, and the classic, “if it ain’t broke don’t fix it”. Invariably all true anxieties, but what if one were to say there is no such thing as technology because technology, any technology, can be seen as just a constantly falling cost line, and the question is always when on this line do you get on, and when do you get off? In other words, don’t look at technology as individual items and functional things but as an economic force like wind and tide that is constantly changing the landscape, sometimes slowly, sometimes as an act of mammoth discontinuity. Ask yourself when you contemplate a technical change, what does it do for the world now and what will it do when it is a third the price?

Technical change is a consistent process, but slower than is often realised. It takes, for example, about 15 to 20 years for mass adoption, and for that to happen costs need to fall exponentially.

Sky now makes significant profits; it has taken football from ITV and BBC, and changed the economics of British television. Sky is a powerful and successful company. However the Sky satellite service is in 7.2 million homes, which is less than a quarter of UK TV homes, and it took 15 years to get there.

This is not an unusual length of time for a new technology to grip the market. E-mail and the predecessors of the Internet started in 1972. At roughly the same time the first domestic video recorder was introduced. It would take 15 years before either was on the lower slopes of ubiquity.

Mobile cellular telephony was first trialed in Chicago in 1979, it took just over 20 years to get to 70% penetration of the UK market.

1977 saw the first Apple computer and in 1981 the first IBM Personal Computer. It has taken over 20 years to get PCs into just 50% of UK homes.

As for falling costs - the first colour TVs were the equivalent of £4500 in today’s money but now cost under £100. You have had the same price fall in VCRs, DVDs and personal computers, and you will see the same fall in digital radios, MP3 players and Freeview set top boxes.

The reason technology takes longer to be adopted than we think it ought is because the fundamental truth about new technology is that we can manage without it; after all we have been. New technology, when first introduced, is seldom better than that which it eventually replaces. Early E-mail and faxes were more convenient than the Telex, but were not as reliable. It took time for early handguns to better the crossbow, and the weight of early mobile phones encouraged the growth of biceps rather than the market. Most of us adopt new technology once it has developed from a small incremental improvement on what exists to a large improvement on what exists.

New technology often needs to be experienced before the benefits are perceived. An example of this is recording television programmes on a hard drive, for example Sky Plus. It sounds no different from recording TV programmes on a VCR. In both cases you tell it to record and play back when it suits you, but you have to experience hard drive recording systems like Sky Plus to understand it’s superiority over the VCR. It takes time to gather experience, and word of mouth to spread, no matter how much you advertise.

Armed with these thoughts, what predictions can we make for digital radio? Over the next ten years the cost of digital radios will drop from around £100 to under £25, and in that time over 50% of UK homes will get digital radio. Meanwhile more digital bandwidth will become available and encourage the creation of new radio stations, and it will be possible to kit out a professional quality radio station for less than the cost of a small executive car. Radio is a highly competitive business so they are well trained to deal with this, but suddenly any of us can start a radio station and all these new services will be ants nibbling at the picnic of the existing broadcasters.

So to sum up; if a market is doubling at regular intervals, then the early growth of the market is virtually unnoticeable and we dismiss it as failed, the latter growth is dramatic, we only notice the dramatic, and once it’s dramatic and every one has one, we take it all for granted. The winner is invariably the one who prepared for the new market in that period of unnoticeable growth. The trick is to see technology as a wave that you surf, and for one, maybe two, glorious moments you will be there poised and balanced until the next wave and wipe out. For in the end, all widgets sink but waves go on for ever.

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