July 24, 2018
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One of my favourite movies of all time is ‘The Prestige’, featuring many great actors of our time. The movie begins with Michael Caine describing magic, with this wonderful quote from Christopher Priest:
Every great magic trick consists of three parts or acts. The first part is called ‘The Pledge’. The magician shows you something ordinary: a deck of cards, a bird or a man. He shows you this object. Perhaps he asks you to inspect it to see if it is indeed real, unaltered, normal. But of course… it probably isn’t. The second act is called ‘The Turn’. The magician takes the ordinary something and makes it do something extraordinary. Now you’re looking for the secret… but you won’t find it, because of course you’re not really looking. You don’t really want to know. You want to be fooled. But you wouldn’t clap yet. Because making something disappear isn’t enough; you have to bring it back. That’s why every magic trick has a third act, the hardest part, the part we call ‘The Prestige’.
I think it’s a wonderful structure to use in analysing technology over the past couple of decades.
If we cast our minds back to the mid-nineties, we may recall how the internet begun appearing everywhere and dominating our conversations. In these early years of the world wide web, it was difficult to imagine the impact it would have on our world. But we’re nothing if not creative as the human race, and we certainly never lacked imagination in dreaming up all sorts of possible futures. The fact that many people will take advantage of this optimism to make a quick buck is sad, but may be forgiven once the impact on the world is felt perhaps many years later. Our optimism remains simultaneously one of our greatest strengths and one of our greatest weaknesses.
So in the nineties, the internet was ‘The Pledge’. Something ordinary, which had in fact been in existence since 1969 (we share a birth year). No one had done anything meaningful with it for over two decades until Tim Berners Lee came along and created the world wide web in the early nineties. This began transforming everything, and just like the ‘space race’ in the sixties had pushed money into science and the hordes of people who were chasing it, the world wide web began pushing money into technology and the people followed. It was inevitable that prices would soar as demand for these companies increased. It is naïve to think that these companies were overvalued.
Today, the pledge is Artificial Intelligence (AI), which too has been dormant (in delivering on its promise) for over 60 years, even longer than the internet. But in the last five years we have seen a massive explosion that has eclipsed even the promise of the internet.
It was impossible to predict the impact that the internet and the world wide web would have on our lives. No one foresaw that Amazon, Google and Facebook would be three of the five largest companies in the world. The other two were Apple (the largest today), and Microsoft, which bailed Apple out in the nineties.
People did however recognise that the internet had the potential to be very big and transform the way we live and work, and many companies were working on leveraging the technologies in very creative ways to fulfil that promise. The companies listed above are all great examples.
The world wide web and everything built upon it (services, applications and companies) was ‘The Turn’. It ignited our creativity by making something extraordinary out of the ordinary. Everyone was looking for the secret, the killer app that would radically transform our world, but couldn’t really identify it. There was too much going on and many things held great promise. We also didn’t really want to find the ‘truth’ because we wanted to remain optimistic about the possibilities. We therefore kept back our applause, as we waited for the last act to be revealed.
Similarly, AI (and all its dependencies – big data and computing power) are beginning to show us the possibilities for transforming our lives in ways we have only previously imagined as science fiction. Potential killer apps are appearing everywhere, and this keeps pushing the field forward at an unprecedented rate. Every day, I am exposed to the latest developments (academic and commercial), and I sit in absolute awe.
We were all disappointed when the final act of ‘The Prestige’ in the nineties resulted in one of the biggest hangovers we have ever experienced. The Nasdaq, which was overweight in technology stocks, was down about 90% from peak to trough after the bubble burst.
But we need to be careful to separate the investment results from the rest of the impact that the internet had on our lives. We achieved a great many things in that period that allowed us to move forward to where we are today. And although there were many failures along the way, there were also some great winners and investment returns (the five biggest companies listed above, plus Alibaba and Tencent in China).
What about this time around?
Once bitten, twice shy. Valuations are a lot less lofty this time around (if you ignore crypto currencies). Although many new AI start-ups will undoubtedly fail, many well-established companies will leverage AI to become the juggernauts of the next decade.
I’ve just returned from a trip to China where the scale of everything just blew me away. The potential for disruption through AI is palpable, but I didn’t get the sense of euphoria that I experienced in the late nineties around the internet. Yes, there are many gimmicks related to AI, but the Internet of Things (IoT) has the potential to power AI to transform our lives.
I don’t believe the potential is exaggerated. It is under-appreciated!