The WelderDestiny Compass

Google is Selling You - Issue #010

Wednesday, March 08, 2017 / Perth Australia / By Niekie Jooste

In this edition of "The WelderDestiny Compass":

• Technology Enables, but Information Platforms Empower
• Economic Rent - The Window on the Economy
• Google is Selling You
• The Welder as Data Source

Technology Enables, but Information Platforms Empower

All of the amazingly advanced things we will be able to do in the future needs technology to enable it to work. In past editions of The WelderDestiny Compass we have discussed technologies such as augmented reality, real-time chemical analysis, real-time laser ultrasonics and laser dimensional measurement, amongst others.

While these technologies are cool as “stand-alone” systems, amazing things start to happen when the data generated by these technologies are aggregated and mined by some kind of “platform”.

In today’s The WelderDestiny Compass, we start exploring how value is added to the economy, by getting to grips with the concept of “economic rent”. Then we explore how the platforms on which the new technology economy is being built aggregates this value.

We then start understanding that in the new technology economy, Welders will be at the contact point where the “tyre meets the road” when it comes to generating the data that will drive value into the future welding industry.

If you would like to add your ideas to this week’s discussion, then please send me an e-mail with your ideas, (Send your e-mails to: compass@welderdestiny.com) or complete the comment form on the page below.

We received a very insightful comment to last week’s e-zine from Nicolas. He was making the point that to be relevant into the future, we will need to mix information technology skills with our technical skills. Click here to read that interesting post.

Now let's get stuck into this week’s topics...

Economic Rent - The Window on the Economy

Ever hear anybody mention the “economic rent” on the finance programs on TV? Me neither! So, what is the economic rent? Here is my definition:

Economic rent is value added to an asset without the owner of the asset having to invest further capital.

Let us look at an example in real estate, to understand this definition better.

If we own a piece of land in an area that is zoned as “rural”, it may have quite a low value, even though it is quite large. Let us say that the market value is $50 000.

Let us say that the local government then re-zones the land for residential use. Suddenly we can sell the land to a developer for possibly $1 000 000. Where did this additional $950 000 value in the land come from? I did not have to do any additional work to add that value. It came from the people that will be using the land in the future.

The additional value was introduced because the “utility value" of the land increased, because it is now possible to generate a higher income out of that piece of land than before. This future utility value of the land is called the economic rent.

In other words, the future utility value has been capitalised into the price of the land. The easy way to think of this is that the increase in value of an asset greater than any amount of money that I invest into that asset, is an increase in the economic rent. This economic rent change often results from the efforts of other people, so in effect they are paying for my economic rent increase.

Sometimes the economic rent can be taken from one party and bestowed on another party. As an example, think of the taxi industry. Taxi licenses were initially issued to regulate the taxi industry. Due to these licenses being limited, they started having a higher value than the price they were originally purchased for. This is an increase in the economic rent associated with the licenses. Taxi customers paid for that increase. At their height, New York taxi licenses were worth more than a million dollars.

Enter Uber, the ride sharing company. Uber enabled essentially anybody to become a taxi operator, while addressing the trust and security issues inherent in a service such as a taxi service. Almost overnight the economic rent value “trapped” in the taxi licenses started to evaporate. The enterprise value of Uber has however grown to around $18 billion. The economic rent enclosed in the taxi licenses are now enclosed in the Uber platform.

So, we hear you ask, how does this affect the welding and fabrication industry? I am glad you asked!

In many areas, our industry is highly regulated. This regulation enabled business models that captured economic rent that was linked to the regulation. Think of the economic rent associated with code compliance. Think of the economic rent associated with qualifications and certifications. Think about how your personal "market value", or the business model of a company you are involved with, is affected by the current regulations and associated economic rent. Now think how such economic rent could be impacted by a "welding Uber".

If you want to read a more comprehensive discussion regarding the economic rent, please click here…

Google is Selling You

In the early days of the internet, the term “surfing the internet” was very apt. If you wanted to find some information about welding, then you would start at one of the internet “hubs” like Yahoo or AOL, and poke around till you found some kind of web page where people would link to websites that dealt with welding. Once you started following those links, you would get to other websites that had further links etc. You never knew where you would end up. It was like surfing an information wave, until you finally found the information you were looking for. Quite often you would spend hours looking, and not finding anything.

The introduction of the search engines changed everything. Suddenly it was a much simpler task to search for information. The earliest search engines were not that great, but Google changed that. It was simple, quick and effective.

Google has a stock market value of around $500 billion. Actually, that is Alphabet’s value, but we won’t get too technical here! Where does Google make its money from? Principally advertising, right? So, what is Googles product? Some people may say it is “search”, but seeing as I don’t actually pay to do my searches, that could not really be their product. Is it the information they provide me with when I do a search? Not really, because that information comes from other people and businesses.

So, what is Google’s primary product? It is you and me, the users of their search engine. When they sell advertisements to their clients, they are indirectly selling what they know about us, as inferred from our search history, so that their clients can sell stuff to us. We are Google’s product!

There are many different technologies that come together to give us the internet. Everything from computer hardware to fibre optic technology to software such as browsers. These technologies have enabled many organisations to provide internet services, but the big value is added by platforms such as Google, Facebook, LinkedIn and many others. These platforms aggregate the data at their disposal, and through data mining and manipulation create products to sell. But, in essence, we the users of the platform, is the product.

While the technology enables, the platforms empower!

This brings us to where you, the Welder, fits into this fascinating picture.

The Welder as Data Source

In our articles, we have discussed a number of really exciting technologies that could become available to Welders in a real-time setting within the foreseeable future. Technologies such as augmented reality, chemical analysis, dimensional measurements through lasers, ultrasonic testing through lasers, grain structure analysis through lasers, heating and cooling rates through infrared cameras and just good old visual analysis through ordinary video feeds.

What happens when all of this data is uploaded as part of the internet of things to the cloud? What happens when this data is available on an internet platform that can aggregate and mine that data from thousands of Welders making millions of welds?

What happens when the data from mechanical testing is integrated with the real-time data captured by Welders?

If this volume and quality of information is available for a modest price, does it even make sense to qualify welding procedures anymore? Err.. probably not!

In this new era, what is the barrier to entry for even small welding businesses into very high value and advanced welding markets, especially those associated with maintenance and other field welding activities? A very low barrier indeed.

Just as you and I provide Google with the information to enable products to sell to their clients, future “welding data” platforms will use Welders as the source of products to sell right back to the Welders and the welding industry.

When a job comes up to perform some welding repairs on a difficult to weld material, we won’t even have to qualify a procedure. We can just pay a nominal amount to our “welding information supplier platform”, and we will be provided with a procedure based on all the relevant data in the database. Information that is based not only on one-off procedure qualification tests, but also on thousands of real welds out in the field. Based on the success or difficulties experienced by hundreds of welders, through the welding of thousands of welds, the optimum procedure can be drawn up.

This procedure can be downloaded directly to your personal artificial intelligence (AI) assistant who will not only guide you through all the necessary parameters, but will also be recording the production weld in real-time for quality control purposes, and off-course… To use that information to further refine the procedure for the next user.

I am sure that you can see how many business models that are currently empowered by welding codes and regulations will be impacted negatively and how new business models based on information will be established. Not to mention how the fabrication codes will have to change!

While many people will fear this new reality, because they suspect that their jobs will no longer be safe, this reality breaks down the barriers for small businesses and free-lance solopreneurs to carve out their niche, and thrive in the new era.

Are you equipped for the new era?

Yours in welding

Niekie Jooste

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