on 15-Oct-2016 (Sat)

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 Complementary #zeroto1 Technology Means Complementarity Now think about the prospect of competition from computers instead of competition from human workers. On the supply side, computers are far more different from people than any two people are different from each other: men and machines are good at fundamentally different things. People have intentionality—we form plans and make decisions in complicated situations. We’re less good at making sense of enormous amounts of data. Computers are exactly the opposite: they excel at efficient data processing, but they struggle to make basic judgments that would be simple for any human. To understand the scale of this variance, consider another of Google’s computer-for-human substitution projects. In 2012, one of their supercomputers made headlines when, after scanning 10 million thumbnails of YouTube videos, it learned to identify a cat with 75% accuracy. That seems impressive—until you remember that an average four-year-old can do it flawlessly. When a cheap laptop beats the smartest mathematicians at some tasks but even a supercomputer with 16,000 CPUs can’t beat a child at others, you can tell that humans and computers are not just more or less powerful than each other—they’re categorically different.

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 Complementary #zeroto1 The stark differences between man and machine mean that gains from working with computers are much higher than gains from trade with other people. We don’t trade with computers any more than we trade with livestock or lamps. And that’s the point: computers are tools, not rivals. The differences are even deeper on the demand side. Unlike people in industrializing countries, computers don’t yearn for more luxurious foods or beachfront villas in Cap Ferrat; all they require is a nominal amount of electricity, which they’re not even smart enough to want. When we design new computer technology to help solve problems, we get all the efficiency gains of a hyperspecialized trading partner without having to compete with it for resources. Properly understood, technology is the one way for us to escape competition in a globalizing world. As computers become more and more powerful, they won’t be substitutes for humans: they’ll be complements.

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 THE ENGINEERING QUESTION #zeroto1 A great technology company should have proprietary technology an order of magnitude better than its nearest substitute. But cleantech companies rarely produced 2x, let alone 10x, improvements. Sometimes their offerings were actually worse than the products they sought to replace. Solyndra developed novel, cylindrical solar cells, but to a first approximation, cylindrical cells are only 1 / π as efficient as flat ones—they simply don’t receive as much direct sunlight. The company tried to correct for this deficiency by using mirrors to reflect more sunlight to hit the bottoms of the panels, but it’s hard to recover from a radically inferior starting point. Companies must strive for 10x better because merely incremental improvements often end up meaning no improvement at all for the end user. Suppose you develop a new wind turbine that’s 20% more efficient than any existing technology—when you test it in the laboratory. That sounds good at first, but the lab result won’t begin to compensate for the expenses and risks faced by any new product in the real world. And even if your system really is 20% better on net for the customer who buys it, people are so used to exaggerated claims that you’ll be met with skepticism when you try to sell it. Only when your product is 10x better can you offer the customer transparent superiority

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 THE TIMING QUESTION #zeroto1 Cleantech entrepreneurs worked hard to convince themselves that their appointed hour had arrived. When he announced his new company in 2008, SpectraWatt CEO Andrew Wilson stated that “[t]he solar industry is akin to where the microprocessor industry was in the late 1970s. There is a lot to be figured out and improved.” The second part was right, but the microprocessor analogy was way off. Ever since the first microprocessor was built in 1970, computing advanced not just rapidly but exponentially. Look at Intel’s early product release history: The first silicon solar cell, by contrast, was created by Bell Labs in 1954—more than a half century before Wilson’s press release. Photovoltaic efficiency improved in the intervening decades, but slowly and linearly: Bell’s first solar cell had about 6% efficiency; neither today’s crystalline silicon cells nor modern thin-film cells have exceeded 25% efficiency in the field. There were few engineering developments in the mid-2000s to suggest impending liftoff. Entering a slow-moving market can be a good strategy, but only if you have a definite and realistic plan to take it over. The failed cleantech companies had none.

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 THE MONOPOLY QUESTION #zeroto1 In 2006, billionaire technology investor John Doerr announced that “green is the new red, white and blue.” He could have stopped at “red.” As Doerr himself said, “Internet-sized markets are in the billions of dollars; the energy markets are in the trillions.” What he didn’t say is that huge, trilliondollar markets mean ruthless, bloody competition. Others echoed Doerr over and over: in the 2000s, I listened to dozens of cleantech entrepreneurs begin fantastically rosy PowerPoint presentations with all-too-true tales of trillion-dollar markets—as if that were a good thing. Cleantech executives emphasized the bounty of an energy market big enough for all comers, but each one typically believed that his own company had an edge. In 2006, Dave Pearce, CEO of solar manufacturer MiaSolé, admitted to a congressional panel that his company was just one of several “very strong” startups working on one particular kind of thin-film solar cell development. Minutes later, Pearce predicted that MiaSolé would become “the largest producer of thin-film solar cells in the world” within a year’s time. That didn’t happen, but it might not have helped them anyway: thinfilm is just one of more than a dozen kinds of solar cells. Customers won’t care about any particular technology unless it solves a particular problem in a superior way. And if you can’t monopolize a unique solution for a small market, you’ll be stuck with vicious competition. That’s what happened to MiaSolé, which was acquired in 2013 for hundreds of millions of dollars less than its investors had put into the company. Exaggerating your own uniqueness is an easy way to botch the monopoly question. Suppose you’re running a solar company that’s successfully installed hundreds of solar panel systems with a combined power generation capacity of 100 megawatts. Since total U.S. solar energy production capacity is 950 megawatts, you own 10.53% of the market. Congratulations, you tell yourself: you’re a player. But what if the U.S. solar energy market isn’t the relevant market? What if the relevant market is the global solar market, with a production capacity of 18 gigawatts? Your 100 megawatts now makes you a very small fish indeed: suddenly you own less than 1% of the market. And what if the appropriate measure isn’t global solar, but rather renewable energy in general? Annual production capacity from renewables is 420 gigawatts globally; you just shrank to 0.02% of the market. And compared to the total global power generation capacity of 15,000 gigawatts, your 100 megawatts is just a drop in the ocean. Cleantech entrepreneurs’ thinking about markets was hopelessly confused. They would rhetorically shrink their market in order to seem differentiated, only to turn around and ask to be valued based on huge, supposedly lucrative markets. But you can’t dominate a submarket if it’s fictional, and huge markets are highly competitive, not highly attainable. Most cleantech founders would have been better off opening a new British restaurant in downtown Palo Alto.