Digital Economy Dispatch #095 -- Reflections on a Long, Hot Summer for the Digital Economy

Digital Economy Dispatch #0955th September 2022

Reflections on a Long, Hot Summer for the Digital Economy

It’s been a long hot summer. Throughout the UK we have seen record breaking high temperatures (with a maximum on 19th July of 40.3°C), the lowest rainfall (July was the driest on record for over a hundred years), and water shortages across the country exposing the critical state of the water supply infrastructure. Much of Europe has suffered the same fate.

However, the summer of 2022 will undoubtedly be known for a lot more than the lack of rainfall. While many of us have been baking in the sun, much more troubling issues have been building up. We have armed conflict continuing in Ukraine, soaring energy prices everywhere, growing waiting times for hospital treatment, rapid rises in inflation, strikes in several key industries over wages and conditions, and much, much more. Given these challenges, it is hard to be positive about the immediate economic and social outlook.

In the midst of this troubling context, the highs and lows of the summer 2022 continue on a personal level. For me, perhaps like many people, the summer has been characterized by three main experiences.

Firstly, this summer saw the chance, at last, to take a break. Having struggled during the past 3 years to find the opportunity to take a holiday overseas, we saw a huge increase in flights, train travel, and road trips. Getting away from home seemed even more important than ever as home and office merged with the result that some of us have felt trapped for many hours a day in attics, basements, and spare bedrooms. Getting time away from it all was a priority and a welcome relief.

However, the second realization is that nothing is quite as it was – especially not the travel and hospitality experience. Following record lows in 2021, the numbers travelling on planes, trains, and automobiles very quickly recovered to pre-pandemic levels. And it was soon clear just how unprepared the companies and support systems were to deal with this. Getting away meant facing cancelled flights, 3-hour check-in times, and queues everywhere. Travelling to your relaxing break was long, stressful, and expensive. And getting home just as unpredictable.

The third hurdle was the continued health impact of the Covid pandemic. Having avoided catching it for 2 years, like me, many were struck down with the more virulent Covid variant that emerged. In my case, this resulted in 2 weeks feeling as ill as I ever remember, and almost a month with noticeable fatigue. Not how you want to spend the warmest days of the year.

Digital to the Rescue?

So, what, if anything, does this difficult summer tell us about the digital revolution and the state of digital transformation in 2022? What advances can we hope to see to improve our digital future? Here again, the last few months has been tough and prospects for the future have taken a bit of a beating.

There was a frantic rush to adopt digital technology at the start of the pandemic. Key products and services were in high demand. Shortages were common with a major focus on finding the skills required to deploy them. Surely this has brought notable increases in productivity.

Unfortunately, it seems not. In a revealing article in The Economist called “The Missing Pandemic Boom”, a series of recent research reports is examined to look for signs that the rapid digital deployments over the past 2 years are bringing productivity gains. The data seems to indicate that it is not.

According to the article, there have been two important impacts of recent digital technology investments. The first is that technology spending has focused much more on short term demands to create a more resilient infrastructure rather than increasing long term opportunities. Given volatility in supply and demand, this makes perfect sense. However, it inevitably has important consequences on organizations seeking growth. In fact, the digital focus on managing risk in areas such as cybersecurity and supply-chain will knowingly increase waste, not make an organization lean and more efficient.

Secondly, the shift to working from home has increased flexibility for workers, but it is not showing the increases in performance and productivity predicted by many. Instead, the situation is much more complex, with ongoing adjustments needed to align work patterns, support collaboration, and synchronize incentive schemes. Many organizations continue to struggle to understand and optimize for emerging hybrid working styles.

Into this context we also must now consider the impact of two new EU digital regulations that were passed in July 2022. The Digital Services Act (DSA) and the Digital Markets Act (DMA) come into effect early in 2023. The DSA is intended to reduce hate speech online and clarify rules on advertising. The DSA hopes to increase competition by recognizing some digital infrastructure companies as “gatekeepers”.

Similar to GDPR, these EU regulations are likely to have a big impact around the world. And demand new investments to comply with their requirements. How much, we have yet to see. But its benefits will only be realized if these Acts can be meaningfully enforced. Something that many are already beginning to question.

But surely the “new digital reality” induced by pandemic is here to stay? Even that remains unclear. On a more practical level, the start of the Covid pandemic saw huge investments in a range of digital technology companies. Top of the list were companies disrupting their industries such as Zoom (online communications), Netflix (media streaming), Peloton (digital exercise activities), and Robinhood (real-time stock trading). During the initial months of the pandemic, the stock price of these companies rose by an average of over 300%.

Over the summer these companies have seen a big reversal in fortunes. The recent troubles retaining subscribers at Netflix are well documented. Similarly, Zoom’s stock price was at its peek in the summer of 2020 at well over $500 per share. Just 2 years later it is below $80 per share. Is this an indication that the digital optimism of a transformed home and workplace experience was misplaced? Perhaps. The next few months will be interesting to see which of these changes remain and which are undone.

For many, the challenges and volatility of all things digital are highlighted by the wild ride experienced by those investing in cryptocurrencies such as Bitcoin (thankfully not me!). Alongside other issues and adjustments, we have also seen a more substantial “crypto crash”. Excitement about cryptocurrencies such as Bitcoin and Ethereum has rapidly disappeared. Indeed, even efforts explicitly aimed at reducing volatility such as TerraUSD, a stablecoin acting much like a bank, have suffered. Over the summer, Luna, the cryptocurrency backing it, lost 97% of its value in just 1 day.

Two Steps Forward, Three Steps Back

After a long, hot summer break, it is a good time to reflect and take stock of the state of digital technology adoption. It’s been a tough few months and many anticipate even more difficult times ahead. Predicted productivity improvements from digitization are slow to appear. The fortunes of well-regarded digital innovators have dropped. Cryptocurrencies have crashed. What can we learn for the future of digital transformation?

Perhaps the best we can say is that the summer of 2022 has reminded us all that for most organizations the drive to digital transformation should be seen as a marathon and not a sprint. Early successes, no matter how hard earned, may be fragile. Undoubtedly, we have challenging times ahead. Substantive longer-term impact will require short term adjustments to the volatile changing circumstances, and a strategy focused on winning the long game.

Digital Economy Tidbits

12 Graphs that Explain the State of AI in 2022. Link.

A fascinating view of the state of AI in 2022 by looking at some of the data on what’s happening in its development and application.

Every year, the Stanford Institute for Human-Centered Artificial Intelligence (HAI) puts out its AI Index, a massive compendium of data and graphs that tries to sum up the current state of artificial intelligence. The 2022 AI Index, which came out this week, is as impressive as ever, with 190 pages covering R&D, technical performance, ethics, policy, education, and the economy. I’ve done you a favor by reading every page of the report and plucking out 12 charts that capture the state of play.

The Uselessness of AI Ethics. Link.

I can’t help but admire the bravery of someone willing to write a paper with this title. Essentially the author makes the argument that there is too big a gap between the aspirations and rhetoric on AI ethics, and the reality of its implementation.

A flood of AI guidelines and codes of ethics have been released in both the public and private sector in the last several years. However, these are meaningless principles which are contested or incoherent, making them difficult to apply; they are isolated principles situated in an industry and education system which largely ignores ethics; and they are toothless principles which lack consequences and adhere to corporate agendas.

How to Use Big Data and AI to Improve Agriculture Yields. Link.

I thought this was an interesting perspectives from Teddy Bekele, chief technology officer at Land O’Lakes. He outlines the growing importance of data and analytics in the “farm to fork” journey. They focused down on three things to help farmers….climate, soil, and topology.

You might have seen Land O’Lakes’ dairy products on store shelves without giving much thought to how they got there, but that’s something CTO Teddy Bekele thinks about every day. While the farmers and agricultural retailers of Land O’Lakes work to produce the cooperative’s products, starting from the seeds used to grow animal feed, Teddy Bekele is focused on supporting agriculture’s “fourth revolution” — one that’s embracing technologies like artificial intelligence. On this episode of the Me, Myself, and AI podcast, Teddy explains how Land O’Lakes uses predictive analytics and AI to help farmers and other agricultural producers be more productive and make better decisions about the business of farming.