The invisible second economy (for servers and storage)

“Digitization is creating a second economy that’s vast, automatic, and invisible—thereby bringing the biggest change since the Industrial Revolution.”

– W. Brian Arthur, McKinsey Quarterly

In an article posted on McKinsey Quarterly (registration required), W. Brian Arthur contends that we are on the brink of an economic transformation and and it’s happening on such a large scale, all by itself, and we can’t even see it.  It’s being dubbed the “second economy” or the digital economy and by 2025 it will be the same size as the economy we experience today.

“Here’s a very rough estimate. Since 1995, when digitization really started to kick in, labor productivity (output per hours worked) in the United States has grown at some 2.5 to 3 percent annually, with ups and downs along the way. No one knows precisely how much of this growth is due to the uses of information technology (some economists think that standard measurements underestimate this); but pretty good studies assign some 65 to 100 percent of productivity growth to digitization. Assume, then, that in the long term the second economy will be responsible for roughly a 2.4 percent annual increase in the productivity of the overall economy. If we hold the labor force constant, this means output grows at this rate, too. An economy that grows at 2.4 percent doubles every 30 years; so if things continue, in 2025 the second economy will be as large as the 1995 physical economy. The precise figures here can be disputed, but that misses the point. What’s important is that the second economy is not a small add-on to the physical economy. In two to three decades, it will surpass the physical economy in size.”

Think about it.

How much of what we do today versus 10 short years ago is managed by storage talking to storage, or servers talking to servers?

Banking. When was the last time you walked into a bank and spoke to a teller or banker? With ATM machines, direct deposit, online bill pay, etc. we virtually never have to speak to a human being. We talk to machines who talk to other machines. In this case servers and storage.

Travel. We seldom “have to” talk to a travel or ticketing agent. We browse  on machines, purchase our tickets on machines, check in on machines. All talking to servers and storage enabling them to talk to each other.

Commerce. I remember gas station attendants who would fill your gas tank (I was really young). Today, we pull in, slide our credit/debit card into a machine that tells another machine we can begin filling our tank, and when complete, the machine tells another machine (servers and storage) how much to take out of our bank account…which is served and stored an yet another machine.

It goes well beyond banking, travel, and commerce. The second economy transcends almost everything we do. From establishing new relationships in the social stream, to enjoying music (iTunes) and movies (Netflix).  The scary thought is that this transformation is infantile. We are only scratching the surface of what the digital economy is capable of in terms of changing the way human beings go about their lives on a daily, hourly, or minute by minute basis.

Where else do you see the “second economy” impacting your life today and in the future?

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