[Feature: Society Changed by Smartphones] Taro Matsumura: Why I Saw Smartphones Becoming the Frontline of Innovation in Silicon Valley

2022/04/05

In November 2011, I moved for the first time from Tokyo, where I had lived for over 30 years, to a city called Berkeley, California, near Silicon Valley. It is a place often called the "Holy Grail of Liberalism" and is the most important interdisciplinary city when discussing the overthrow of conservatism in the United States. I still remember the irreplaceable sense of reassurance I felt when I signed a contract for an iPhone at the Apple Store in that city.

Born in 1980, I enjoyed the fusion of mobile phones and the internet that was born in 1999 during my university life. For our generation, from the beginning, the mobile phone was not so much a telephone as it was the most important information terminal, a wallet, and a spiritual anchor for connecting with people. When I tell this to today's university students, they look bored as if to say, "What else is new?" as it has become so commonplace. However, the devices themselves have been replaced from Japanese mobile phones to global smartphones, and have undergone dramatic evolution in the meantime.

For someone like me who experienced that "mobile revolution" in Japan, moving to the U.S. in 2011 was the perfect timing. This was because American society at the time was just about to undergo a "social transformation via smartphone."

California, when I first moved there in 2011, was full of problems. The economic recovery from the Lehman Shock was slow, and the streets were overflowing with homeless people. People without jobs were prominent, and public safety was poor. Local news repeatedly warned people to avoid using their iPhones while walking in the city. They could be expected to be resold at high prices, making them perfect targets for snatchers. In such times, even if it is a smartphone you worked hard to get, you must not cling to it. Snatchers in the U.S. will target you with the resolve that they are not afraid to commit murder.

In addition to problems reflecting the recent economic situation, within about two weeks of living there, I realized that it was a society fraught with various inconveniences and uncertainties. Moving there from Japan in 2011, there were so many problems that it made me put my head in my hands. The American social system was so broken that I was appalled that generations older than mine had often looked up to it as an "object of enthusiastic admiration."

For example, transportation was an area that was a mass of inconvenience and uncertainty. Urban planning was not designed for convenient access to public transportation, and since it was not the mainstream mode of transport, the frequency of service was low. Reaching a destination was difficult without a car, or public transportation would take three to five times longer. Taxis were not in the city or at stations to begin with, and the fares were basically high due to tips and other factors. To be honest, it was nothing but stress.

As for payments, although it is called a card society, those cards were subject to skimming damage once every few months, and suspension of use and reissuance were common. On the other hand, means such as checks continued to be used as a matter of course, and depending on the person, one would be forced to exchange cash because they did not want to leave a record. Money exchanges were basically face-to-face, and bank transfers were not utilized much.

All of these problems would eventually be solved as smartphone "apps."

Regarding transportation, the environment changed dramatically with the appearance of "ride-sharing" apps such as Uber and Lyft. If I had moved to the U.S. after these apps became widespread, my family would likely have considered a life without a car in Berkeley.

Ride-sharing apps match people who want to move with people who want to provide transportation in real-time. This is backed by the fourth generation of high-speed mobile communication (4G), high-precision location information services equipped in smartphones, and car navigation systems utilizing AI. Because all of these are built on open mechanisms, optimization progresses at a tremendous pace.

A very unique point about ride-sharing apps is that they achieved the solution to "urban transportation problems" through the solution of "employment measures by rediscovering idle assets in the city," which is also a challenge that local governments are desperate to realize as a policy.

Regarding payments, skimming damage has almost disappeared with services that link credit cards to smartphones, such as Apple Pay and Google Pay. Apple and Google negotiated with banks that issue credit cards to bring payment methods to smartphones. At the same time, they educated stores and app developers on the fact that they could increase sales by providing safer, lower-risk, and easier payment methods, which led to the solution of the social problem of skimming.

In addition, payment methods such as Venmo, Square, and PayPal developed as smartphone apps, making it possible to send money with the same feeling as sending a message.

What I have seen in the U.S. since 2011 is the utilization of smartphones and their app development environments as a "social problem-solving platform" to eliminate social inconvenience and uncertainty. This is the most effective way to spread problem-solving. Men and women of all ages, from the poor to the ultra-wealthy, have smartphones in their pockets, allowing for the provision of problem-solving means that affect the greatest number of people. It has been a decade where such realization and conviction were formed, and the "method of problem-solving via smartphone" was established.

So why can smartphones and their apps solve social problems to this extent? What can be found there is the good compatibility with the "common language of problem-solving" rooted in Silicon Valley.

The common language of Silicon Valley includes English, programming, and design thinking. Design thinking is a method for developing products and services oriented toward problem-solving, placing importance on "user experience" such as empathy and satisfaction. It is also a way of thinking that aims to reach the correct answer while repeatedly performing the creation and combination of ideas and trial and error.

A presentation that was like a textbook example of such design thinking was the announcement of the first iPhone by then-Apple CEO Steve Jobs in January 2007.

What was called a smartphone at the time was a terminal connected to the internet that supported email and the display of simple websites. The focus was on being able to read and write emails, and it was common for pocket-sized terminals that were a bit wide to be equipped with keyboards with tiny buttons less than half the size of a pinky fingernail.

On stage, Jobs harshly criticized existing designs, saying, "They call them smartphones, but they're not smart at all." He pointed out that even though many things could be done with apps, fixed buttons failed to provide easy-to-use operation methods. Many people empathized with the point that the designs that had been taken for granted were not truly pursuing ease of use.

As a way to fundamentally solve that problem, he unveiled a design featuring the iPhone's large touchscreen. At the 2007 stage, app provision by developers other than Apple was not yet possible, but naturally, on the premise of building an app market in the future, he prepared a mechanism where easy-to-use operation methods could be freely defined within the screen. Note that the App Store was opened as early as 2008, the year after the iPhone's appearance.

The innovation of the iPhone was the liberalization of the user interface, and by this spreading to smartphones as a whole, smartphone apps became the site for free trial and error and prototyping in design thinking. The reason smartphones have come to be hailed as the primary platform used for solving social problems is that design thinking, which fits modern problem-solving, is being tested most easily and in the greatest numbers.

There is one more secret. Platform companies often strategically perform an "abandonment of thought" where they themselves do not decide all the ideas too much. This strategy, which may seem irresponsible at first glance, becomes a very effective means for identifying trends in an era of rapid change, difficult prediction, and increasing uncertainty (VUCA: Volatility, Uncertainty, Complexity, Ambiguity). This is a way of fighting permitted only to giant platform companies that have many developers and advertisers doing business and have sufficient cash or sales on hand as working capital.

For example, when Apple introduced the iPhone, they likely did not think that people would freely share content on Twitter or Instagram, or secure transportation with Uber. However, in reality, these innovations are happening on smartphones, and as a result, they have become a method for increasing the value of the platform.

In Japan, the initials of giant technology companies are bundled as "GAFA." In the U.S., the four companies Google, Amazon, Facebook, and Apple are referred to as "Big Tech."

Incidentally, Facebook recently changed its parent company name to "Meta." Until now, it has aimed to realize its purpose (reason for corporate existence) of "connecting people around the world" through SNS, but while keeping that goal, it has chosen the virtual space, the world of the metaverse, as a means to open up a new frontier.

Each of these companies possesses several services with a user base on the scale of over one billion people, and they skillfully differentiate themselves into search, e-commerce, social network services, and smartphone platforms and app economies. The concentration of power and monopoly are often questioned in Congress and the courts, but their argument is as follows:

"We may indeed have a high share in specific areas, but our sales scale in the industry as a whole is small."

It is true that Google holds sway in the field of digital advertising, but even so, it shares the market with advertising platforms such as Facebook and Twitter, and if even larger advertisements such as television are included, Google's claim is not a lie. Apple alone monopolizes the profits obtained from global smartphone manufacturing as a whole, but in terms of platforms, it is only a force of 15%, and it uses the existence of Android, led by Google, as a "reason for not monopolizing." It is clear that the four companies, which exist through a give-and-take relationship, are surviving and becoming giant.

However, that excuse will soon reach its expiration date. This is because the COVID-19 pandemic has accelerated the concentration of wealth and power in the digital economy, or the giant platform companies that constitute it, and the movement toward becoming the mainstream is strengthening. This change is rapid, and the transformation of American society via smartphones that I saw in the eight years leading up to the pandemic is happening in a matter of months.

For example, looking at the penetration rate of e-commerce reveals a surprising fact. The share of e-commerce in U.S. retail sales was actually leisurely, increasing by less than 1% each year, and was only about 16% by 2019. However, due to the pandemic, it grew to 27% in April 2020. The increase in penetration that had taken 10 years to grow was added on in eight weeks. Naturally, Amazon is receiving a large part of that benefit.

Apple took 42 years to push its market capitalization to $1 trillion, but it took only two years (August 2018 to August 2020) to increase from $1 trillion to $2 trillion, and it was an even shorter one year and four months (August 2020 to January 2022) from $2 trillion to $3 trillion. Despite this, Apple's price-earnings ratio (PER) is 32 times, and there is little sense of overheating in the stock price itself. In other words, not only the stock price but also sales are rising, confirming that money is gathering at Apple in every sense.

Gathering excellent human resources, joining hands with developers around the world, having users all over the world, and collecting money from them daily. Smartphones have fattened giant platform companies, and the pandemic has accelerated this. Such a situational analysis is by no means reckless and can be said to be a fact that should be accepted.

How fast can you say the multiplication tables? Setting aside whether that has meaning, the smartphone in your hand performs over 1.5 billion calculations per second. Knowing that fact, the meaning and confidence of humans being able to perform calculations with their own hands crumbles. Of course, that would be a normal sensation.

What matters in fields such as artificial intelligence and machine learning is basically the speed of calculation and learning data. The results these produce are nothing more than presenting the result that seems to best fit past cases as a "prediction." For this reason, training with vast amounts of learning data accompanies AI, and the cleverness of AI is created by its quality and bias.

AI research was also active in Silicon Valley, but there were two movements behind it.

One is the spread of people who feel discomfort, creepiness, or aversion toward AI. Just around the time smart speakers began to spread, a misunderstanding spread that they might be collecting information on consumers via microphones and cameras to improve learning accuracy. This was a result of the understanding of the AI learning mechanism—namely, that it requires vast amounts of data. For this reason, the movement to unplug smart speakers spread. Some people were not satisfied with just their own homes and even asked their neighbors to unplug their smart speakers.

The other is the consideration for human rights by giant U.S. companies. AI-related services from Big Tech are always checked by lawyers. Is the original data being collected correctly? Is there no bias in the data and results? Are they using expressions that lead to misunderstandings? Even if it is a statistically significant result, if a bias such as race is found, it can no longer be used. In this way, the initiative for AI evolution at the product level is shifting to China, which is not fussy about considerations.

Smartphones have not only evolved as devices extremely good at calculation, but have also become devices that handle information related to much of our lives, human relationships, and work. Perhaps if Google or Apple got serious, smartphones would possess the ability to grasp information and patterns sufficient to perform accurate predictions that we could never imagine.

From here on, it becomes a tug-of-war over "how far is acceptable?"

For example, how about a function that automatically discovers appointments you forgot to put in your calendar from emails or messages and displays them on the calendar? This would mean the smartphone was checking the contents of your communication, but would that be acceptable?

What if, while traveling, the location and check-in time of the hotel you plan to stay at tonight, booked on a travel site, were automatically plotted on a map app? This would mean the smartphone knows your actions for the next few hours in advance, but would that be acceptable?

Both are functions already implemented in Google and Apple smartphone OSs, and whether or not to accept innovation is being hindered not by technology but by our psychology.

Smartphones have solved various social problems. That problem-solving method has become established in humanity as a pattern since the 2010s, eliminating inconvenience, reducing uncertainty, and making it possible to produce a more comfortable life from one's hand.

However, the aging of the population is progressing even further, and climate change does not stop. Prices are influenced by the cost of resources, and in Japan in particular, life itself has become difficult due to the economic gap with the rest of the world. And wars happen.

The information we can receive should be increasing, but somehow the consciousness as a bystander has become stronger than ever, and there is even a sense of pushing various sacrifices and burdens onto the outside. Can we really accept these as the results of innovation?

Thinking about innovation again, we see that it is realized by seeing through the essence of the value provided, discarding conventional wisdom, and thoroughly sticking to the user experience. It is an era where brands do not hold sway. Rolex, which reigned for 100 years as the best wristwatch brand, was overtaken in sales by the Apple Watch in just three years. There is no doubt that Rolex maintains cultural value, but the cause of its defeat is likely that it did not step into provided values other than "knowing the time" for a long time.

Platformers, as disruptors, know this well. Therefore, they will not stop continuing to supply provided value. Smartphones will not stop and will swallow up everything around us, including health, medical care, education, administration, voting, and identification. And the important thing is that both Google and Apple are blessed with enough cash to wait for the time to ripen. Or they can even conveniently control time. It is fine if it accelerates, but depending on the case, there is even the possibility that they will intentionally create delays.

This is the reason why I personally think it is better not to leave innovation to smartphones any longer. This is because I do not want to become a "smart human" to the extent that I accept having even my own future controlled by Big Tech.

So what will be the replacement? Will it be cars, cities, or perhaps educational institutions like universities? One thing that can be said is that it is important to implement the problem-solving method via "apps" achieved by smartphones more finely in other fields, and I believe that knowing and learning about smartphones well will be the key to the next innovation.