It's the (Social/Mobile/Cloud) Economy, Stupid (Part 1)

We are gonna party like it’s 1999.

We are 1-2 years into a 5 year cycle during which we will see robust economic growth that, similar to 1995-2000, will drive market indices to (almost?) unprecedented levels. And it’s all because of the move to social, mobile, and the cloud. Since before the LinkedIn IPO, the debate about whether we are or are not in a bubble has persisted. So let’s clarify what’s going on. We’re in an expansion explosion (which is good) that will cause a bubble in the markets (which will rock) that will ultimately pop (which will suck), but we will make a lot of money during the process and create entirely new industries (both of which are super cool).

It “feels” like this is all happening, but it’s hard to qualify and quantify why. Let's….

(1) Web -> social computing, tethered -> mobile computing, and local -> cloud computing equals big times three.

(2) We’re going to start generating >2.5 million jobs per year because every company in the world needs a social computing department that will drive sales and productivity, which will increase demand for other laborers. Also, we need people to build entirely new broadband, mobile and cloud infrastructures.

(3) The NASDAQ is going to 5K again as investors bid up valuations of companies participating in this expansion and financials cash in on the boom.

(4) Consumer spending will increase because people will get jobs and watch their investment and retirement accounts swell. Boom. There’s the cycle.[[MORE]]

Big x 3

Social. I’ve said before that the move from web-based to social computing is as or more profound than the move from desktop to web-based computing. Social computing improves access to and accelerates the velocity of information, and allows individuals to more effectively find and act on information relevant to them. Consequently, social computing has an order-of-magnitude impact on how companies conduct business; i.e., the ROI on marketing, customer service, data analytics, back office, etc. all arc up.

So how does this impact spending and hiring?

First, every company, big or small, needs to add a social computing department. Just like every company, big or small, needed to add a digital media department 15 years ago. If I told you then that every company needed a digital media department you would have laughed and said it would all be handled out of the “tech department” (i.e., the IT budget). It didn’t happen last time and it won’t happen this time. Next you will say that companies will move budget from digital to social so it’s a wash. But they didn’t move budget from IT to digital last time and they won’t move budget from digital to social this time either. Why? ROI. Corporations are lean. They were getting a good ROI on their IT investment. They get a good ROI on their current digital investment. And they’ll get an incremental good return on their social computing investment. Here’s an anecdotal data point: one large financial services company (who will remain nameless) has already hired a dozen or so new employees to do “social.” A start, yes, but not meaningful enough to move the needle. However, the improvements in demand driven by a few incremental hires in social have caused the company to ramp up hiring hundreds of new employees in sales and other roles. So just because companies won’t hire millions of new people “doing social” doesn’t mean that social won’t drive hiring. Quite the contrary and this is just the beginning.

Second, the existing network infrastructure was not built to support the way data moves around now; rather, it was built such that large pieces of content (e.g., video) that were accessed by tons of people were replicated and pushed out to the edge to decrease the burden on the core backbone and improve response times (thank you, Akamai). By contrast, today 700 million Facebookers (not to mention a half a billion Youtubers, Instagramers, etc.) are uploading photos and video that only a handful of people will view (for reference, check out my mother-in-law’s Facebook profile). Edge caching won’t solve the problem and even if it did it only pushes the problem a little further out. The whole network needs a massive upgrade, just like it did 15 years ago. That costs a lot of money. And the beneficiaries of the move to social are going to pay for it, just like the beneficiaries of the move to web paid for it last time.

Mobile. Everyone’s got a cell phone, but coverage stinks and usage - especially data usage - is increasing. So the carriers will be upgrading at an unprecedented rate. How will they pay for it? Right now, there are approximately 240 million cell phone accounts in the US. Only about 30% are smart phones (some say more, some say less), but soon everyone will have a smart phone with a data plan. So let’s say 80% of the 70% that don’t have data plans get plans. That means over 130 million new data plans - at $30/month that’s almost $50 billion in incremental revenue per year to the carriers (roughly half of which is incremental free cash flow). Go ahead and DCF that number - it’s large. There’s the spending. Where’s the hiring? Someone has to build equipment, buy equipment, install boxes, climb cell towers, administrate, manage, market, support, etc. So there’s your skilled (engineering) labor and your unskilled (plumber’s crack) labor.

Cloud. The picture so far: everyone is connected via social media - sharing links, photos, and video of increasing data size and accessing via desktop, mobile, and other devices. Consequently, the old (local) model of data storage is antiquated. The new one is the cloud - all of our data accessible everywhere at any time from any device. (Hey doesn’t that also increase the burden on broadband and mobile infrastructure? Yup.) Most of us have been using some cloud services already whether we realize it or not (Gmail, Picasa, Facebook photos, Dropbox, Mozy backup, MiMedia, Evernote, etc.) And if we weren’t before we will now because Steve Jobs told us to (bring it, iCloud). Forrester wrote a report in June 2011 forecasting that today’s 50 million or so “personal cloud” users will grow to almost 200 million by 2016 (a quadruple, nice) driving $12 billion in annual revenue by then. Will spending shift from local to cloud? Nope. People will still store stuff locally, and add cloud services. Voila - incremental revenue; incremental profits; incremental marketing, support, administration, equipment purchase, provisioning, installation, etc. Businesses will do this too if they haven’t already. So whatever number you come up with for the personal cloud stuff - double it.

Spending and jobs, baby.

(To come:  >2.5 million new jobs, NASDAQ 5K, and consumer spending….)