Video transcript: The future is already here – Melissa Clark-Reynolds

Transcript for a video featuring Melissa Clark-Reynolds recorded for the Audit New Zealand 2020 information updates

Melissa Clark-Reynolds

My name is Melissa Clark-Reynolds and this is a presentation I originally gave in March 2020 for Audit New Zealand, prior to the rahui lockdown. My main theme of my talk is the idea that the future is all our around – it’s just not evenly distributed. Some of you may have heard this quote before, it comes from a science fiction writer whose name is William Gibson. What I like about the idea is that we might be glimpses of the future long before these ideas become mainstream.

So this first slide that you’re looking at here, this is the first weirdo, basically, who drove a car down 5th Avenue in New York. Why I think of him as a weirdo, is he was a guy, and back then everybody had horses and carriages and there was this weird guy who owned a car and he drove it down 5th Avenue. And you can imagine what the neighbours would say, right? Nobody really like change, and so the neighbours were probably going, “Look, he’s got to send a horse and cart down to the docks to pick up petrol to put into that car.” And I got more and more fascinated and I actually saw this in a presentation from a guy called Tony Sieber who was a futurist, and it sent me down a rabbit hole of looking at article from the time and what attitudes were at the time.

Of course, what we saw, is that there were lots of people that were concerned about the disruption to employment in particular that the car was going to cause. So when they thought about that, they were saying, “Look, in New York City there are all these jobs for stable hands, there are all these jobs for people who are farriers, groomers; Manhattan still had farms back then and wasn’t completely built out with houses, and so there were farms on the island that cut hay and brought that into the city and there was massive concern that all these jobs would be displaced if the car took off.

You can see how there will be parallels today with some of the concerns we have around new technologies coming in. The car, we take it so much for granted now; we don’t think of the car having been a new technology not that very long ago. As well as these, what we’ve found is that here was no infrastructure in place, so of course there were no petrol stations. There wasn’t even actually a standardised rule for which side of the road to drive on; so none of these existed. Probably the biggest thing that helped the car to actually become commercialised, was the people who had the courage to invest in petrol stations.

This is an interesting thing from a government point of view, because what we see is often technologies don’t actually take off until someone has the courage to invest in infrastructure. So I want you to hold that thought for a minute, and I want you to look at this next slide. I’ve been on the internet now for, well, it turns out to being over 30 years which is a very weird thing. Because in this current lockdown, it seems like this has been the fastest accelerated digitisation I’ve actually seen in my whole career.

When I first went on the internet, I had to know how to code. I used a mainframe computer and I used to have to actually programme in to find all the URLs, to find the WWWs that are there. We used to have to programme that, we used to have to programme email. In fact, I paid IBM for an email system; it cost me $40 a month back in the late 80s, and that $40 a month email system gave me 40 emails a month. If I wanted to buy more than that, it was incredibly expensive to pay for. And what happened, as you’ll see on this next slide, AOL came along and I was in the States as a student, and AOL offered me a $39.95 a month all I could eat email. So of course I moved.

The technology wasn’t actually better or any different from IBM’s, but the business model was completely different. For a long time, AOL dominated the internet market and the email market. You can see in this graph that something happened to them in around 2007. I can imagine if I was sitting on the board of AOL, I’d be really concerned, because something is happening to our income. I know a lot of you here are accountants and CFOs and auditors; you don’t have to have any financial understanding or mathematical understanding to look at this curve and understand that this is not a good curve, right? Does anyone kind of wonder what might have happened to them?

Well, this is what happened to them. Google, Gmail, is what happened to them. I quickly moved from my $39.95 a month, to zero a month all I could eat emails with my Gmail server back in the early 2000s. By 2007, Gmail was completely taking off. Their business model was very, very different to AOL’s, so the reason I could have it for free was because it was paid for by advertisers. So this ad-supported model came in. And again, Google’s mail technology is actually absolutely no different to AOL’s technology; but what they had, is they had a completely different business model. You can see here, is this a good curve or a bad curve? This is a great curve. If this is your revenue curve, you’re pretty happy about that.

Of course, right now, if you’re reading any of the news or you’re listening to the radio, you know that this ad-supported business model really isn’t working like it used to. One of the things that I’d like you to take away from my talk is the idea that every business model, or every strategy works until it doesn’t. So this ad-supported business model absolutely slaughtered the competition in those early-2000s, but what’s happening is, we’re almost 20 years later and that business model doesn’t work anymore. So what we’re seeing in the media industry – it’s not that people don’t want news anymore, it’s just that we’re expecting it in a very different way, and we’re not used to paying for it the way that we might have done in the past.

For me, one of the biggest influences isn’t the new technology itself. I know that a number of you know that I have a background in technology, so you probably thought that I was going to come here today and talk to you about how new technology was going to disrupt business. I absolutely do not believe that. The VR headset was patented before I was born, I started working on algorithms for big data in 1986, I’ve been involved in the early-machine learning technology since the early 90s; these things take a very long time to become commercialisable.  It’s not a technological shift that makes them take off; what it is, is it’s a commercial shift. It’s the ability to find a business model that makes them work.

What about this next curve? Is this a good curve or a bad curve? It depends on who you are. What this curve shows us, is that the price of food relative to income has been declining quite markedly since the 1960s. This is US data, but it’s exactly the same in New Zealand. So while we might have sticker shock sometimes when we go to the supermarket and buy things, what we have to remember is that differential between income and the price of food is getting to a point where food has never been cheaper for us relative to our income. 

This is really important, because if we go back to that email situation, one of the questions that I find myself asking myself is, ‘What happens if the price of food drops to zero? What if we are willing to pay nothing for food? What do we do to fight against that?’ So this idea is the idea of commodification and that overtime, actually, the price of everything relative to income declines. This is very important for the New Zealand economy, particularly when we’re so dependent on the food industry. So for me, one of the things I’m very interested in asking about, is if the price of food dropped to zero, how do we compete? We complete by being really differentiated; we complete by delivering what it is that premium customers want; we compete on adding interesting experiences to that food, to the backstory to the food. You can see that people like Icebreaker adding QR codes to their clothes so that you can engage with the farmer that produces those clothes, and so on.

The next curve, and I promise you this is not just going to be a presentation filled with data, but this last curve that I want you to look at here, is the price of photovoltaic technology relative to the output of electricity over time. You’ll see that here in the 1970s it was quite high at $76 US per watt, and by 2015 it was down to 30 cents. Interesting, last year, the price approximated zero. This is extraordinary, because this price change changes everything. What it does, is it means that the business models that are available for people who generate or use electricity are very, very different than they have been before. So I want you, given that you think about money all day, to really be thinking about the implications for New Zealand’s balance sheets might be here.

When we own technology, and particularly a lot of our primary sector is still very dependent on coal for its electricity generation, when we have so much invested in, say, the primary sector and the coat industry, and our competitors are at a point where their electricity costs drop to zero, we need to be asking some of these questions in New Zealand. We need to be thinking about what the implications are for lending, what the implications are for amortisation of those assets. And at the moment, I’m not seeing that discussion happening. You can see as well why someone like Trump is so in favour of subsidies for coal and for coal-fired power stations, because literally on the US balance sheets, there are all these assets that are about to be worth nothing. If those assets are worth nothing, that has major implications for the US banking system. These are some things that we need to be thinking about at a much more macro level than New Zealand is currently doing.

Scott Anthony here in this next slide, what he talks about is the failure isn’t the failure of seeing a disruption coming, it’s a failure to rethink the fundamental business model. He says, “When disruption is on the horizon, businesses need to reimagine who you are and what you do to offer value.” When I first presented this in March, I don’t know that we knew that business was going to be quite as disrupted as it has been over these last two months. When I look, I see that the companies that have found ways to reinvent their business model during the COVID-19 lockdown, are the companies that are going to survive into the future. The ones that are not surviving are the ones who have what we call pre-existing conditions – they weren’t strong and necessarily fit for purpose prior to the lockdown, and then they found that even more difficult.

I remember in March, if any of you were there, I said, “This is a time where you need 18 months to two years on your balance sheet; if you had no cashflow, could your company survive? It hasn’t ended up being quite as dramatic as that, but that was the concern I had back in March of this year.

We’re just going to change direction very slightly and I want to talk a bit about business model disruption, because this is an area that often we don’t talk about. The biggest business model disruption that I’m seeing in the current economy is the move to a subscription economy. You’ll see here, I cannot think of any type of business that could not be a subscription business. On the top left there is a runway; this is an opportunity where, instead of buying clothes, I could rent clothes. I could rent those clothes for an event, or I could just have these arrive, like two outfits a month or two new outfits a week, or whatever frequency I want to do it, and then I move them on.

This is an incredible thing, because clothing is one of the biggest contributors to landfill globally, and we refresh that fast fashion, people only want to be seen wearing clothes a couple of times and they move those clothes on. Actually, the market for second hand clothes is not as big as you might think it is, especially for a clothes that really weren’t designed to be used for a long time. So I like this idea of renting a runway; that I could find a dress and I could wear it once, or I might have it for a month, or I might decide that I wanted to keep it. But subscription clothing is something that we probably couldn’t imagine even a couple of years ago.

You’ll see there, there’s a picture of Spotify. You might use Tidal or you might use Apple Music; there’s a variety of these out there. But on a Saturday morning I used to go and have coffee with a friend, walk around Unity Books, then walk around to Marbecks and buy some CDs, and I haven’t done that now in decade and I find that really interesting that our whole approach to how we consume music has changed. You’ll see the same thing in the way that we use Netflix; some of you might have Neon or Lightbox or Amazon Prime, but we’ve seen an explosion, particularly in the entertainment industry, of these subscription models.

I think we all believe that terrestrial television has got a very poor future ahead of it. Partly it’s the business model, but partly it’s just the expense of the delivery model. That I can be at home, I can watch something, I can download it immediately, I don’t have to wait for it to be broadcast, nobody else schedules my time. I watch it when I want, how I want. This is way beyond On Demand. This is me wanting to be able to almost schedule my own TV channel by just watching the things that I like.

Food boxes, My Food Bag, is basically a copy of Blue Apron. Blue Apron were doing ten million meals a week before the lockdown in the US and I believe that it’s at least doubled, if not tripled, in that time. There are a number of New Zealand suppliers who supply into Blue Apron. One of the nice things is that they only offer grass-fed meat, and so New Zealand’s got a good position in selling in there. But all of that is food boxes have become standard now, and yet maybe five years ago, they weren’t part of the food shopping landscape. There’s Hello Fresh, there’s all kind of competitors to this.

And then the next one here you’ll see, some of you might be looking at the car, but actually it’s not the car that I find interesting in this picture. What it is, is the roof. This is Tesla’s roof. A few years ago I was doing a project for the Building Research Association, and at the same time we had a leak in the roof and I’d got some prices to fix my roof and it was going to cost around 30 grand, and I found myself thinking, ‘I don’t even really want a roof.’ I’d come out of software where you didn’t buy big things, you got them as a service. I thought ‘Why can’t I have a roof as a service?’ And if I wanted a roof as a service, who would do that for me? I don’t want to maintain it, I don’t to paint it, I don’t want to do any of that. Surely there’s someone out there who would just charge me a monthly fee for a warm, dry house with a roof on it.

I came across this Tesla product not long after that and every tile here is a photovoltaic; so it generates electricity. So instead of just thinking about this as a roof, you should think about this as being a power station on your roof, and you can pay for it monthly. If you pay Tesla monthly for the roof, you can own the electricity it generates and put it back onto the grid, or you can just let them put a power station and your roof and you just buy power off them every month. So a really interesting new thing. My prediction is that within five years, 80% of all businesses will be subscription businesses.

So one of the reasons that you, particularly in your role, should be interested in what changes the subscription business model make, is that I think this is going to have major implications for New Zealand’s balance sheets. As we move from people owning things to subscribing for things, and given that I cannot think of something… It could be carpet tiles, it could be the walls in an office, the roof on a house, how does this change the way that we might do our accounting? How does this change the way that we might think about what an asset is for borrowing against? I believe that in the next ten years, we’re going to see a major disruption to the valuation of businesses across New Zealand.

Imagine if I had a farm, and instead of buying farm equipment, that farm equipment was on a subscription model. What happens to all of the farm equipment that’s currently in New Zealand that there’s no more market for? The same with the changes through things like Uber, with self-driving cars; why would I own a car? I can imagine that the current car that I own, which I do love, but I imagine that it’s my last car, and that from now on, what I’ll be looking for is a car as a service somehow. I’ll be looking for transportation as a service. So what’s going to happen to all of the vehicles that are currently sitting on New Zealand company balance sheets? Where will they go? What will they be valued as? I don’t know the answer to these, but I truly believe that we should be asking these kinds of questions.

This next picture that you’ll see here is another set of changes that are related to the subscription business model. They’ve been enabled by what’s called the internet of things. So the top one here is Amazon Go. Amazon has opened a bunch of supermarkets in the US where I have an app on my phone, I walk into the supermarket, I pick up what I want and I leave. Through sensors, it knows exactly what I’ve taken with me and it knows I have an Amazon Prime account and it puts it into that. So I have a subscription to Amazon Prime, and that subscription allows me to… Not any of this self-checkout thing. No unexpected item in the bagging area. When I go to those now I feel like they’re just the past – they were a dead end. This is purely contactless. Walk in, take the thing you want, put it in your bag, walk out.

The next one up there is the car, and I mentioned subscription cars. This is an offer from Mercedes that’s in the market in the US for $13.84 a month. If I live in the US I can have any Mercedes I want. I could do a deal where this weekend, I’m going away with my girlfriends perhaps, and I might want an SLK with the roof down, we can play loud music and pretend we’re still young, or the next week I might want to take my family away in an SUV because we’re going skiing. I can exchange those out and I basically haven’t bought a particular car, I’m not leasing a particular car, what I’ve got is a deal where I’m paying a monthly amount to Mercedes for Mercedes as a service.

Then interestingly, this is a disruptor to the insurance industry. Because Mercedes doesn’t need me to take insurance out on that car, except for perhaps third-party injury type insurance. Because they own the entire fleet, it’s better for them to self-manage that fleet than to have that insured. So for people who are in the car insurance market, I’m predicting again a 60% reduction in premium payments over the next five years. That’s a huge deal.

On the bottom you’ll see there that there’s a combine harvester. John Deere has said five years ago that they no longer wanted to sell anymore farm equipment; they want to do it as a service. They have mapped the entire mid-west of the US and what they’re doing now is that you pay by acre, or you pay by month that you have the machinery on your site. So nothing on the farm is balance sheet, it’s not an amortised lease or any of that kind of thing, it’s a straight subscription service just like your internet is a subscription service. I don’t expect to own the internet because I pay monthly to Spark, I just have a service and it’s exactly the same here for John Deere.

The little idea that I want you to understand from that bottom one is that 2016 was the year that humans lost the internet. What I mean by that is that 2016 was the last year where human to human traffic was roughly approximate with bots talking to bots. You probably think about bad bots; Russian hackers and all that kind of thing. But most of the bots I’m talking about here are things you probably wouldn’t even think about. Some of you will have a Fitbit. We have a Fitbit at home that links in with my scales, so when I get on the scales it updates my Fitness Pal and it also knows how many steps I’ve done. So I can see very quickly a combination of what food I’m eating, how many steps I’m getting and what I weight. Now, I didn’t have to programme that, it just basically went over the network at home. These little bots found each other, and that’s the kind of traffic now that’s the majority of the internet.

With that, I want you to have a look at this. Because I started tracking back in 2016 a little fridge magnet that I thought was kind of interesting. You’ll remember at the beginning I said that the future is all around us, it’s just not evenly distributed, and this is a great example of it. So this little fridge magnet, machine magnet here, Amazon partnered with a couple of companies. So one of them is Tide, which is a US laundry detergent company and another one they partnered with was Campbell’s Soup. So the Campbell’s Soup ones could go on the fridge, and if you tapped the red one, a can of Campbell’s tomato soup magically appeared in your Amazon shopping here. And here, this Tide one, if I tap the little button, then a Tide box of laundry detergent appears in my Amazon shopping cart.

I thought this was really interesting. This is the beginning of a product becoming a service. Because what’s happening here is in a funny way, I was wondering if that would turn into Campbell’s Soup as a service, or a subscription. The next generation that Amazon released is that one on the top right there which is a fridge magnet again that you could scan items in and out of your fridge, and then they would drop into your Amazon shopping cart. What it does, is it kind of takes butter or whatever you’re using, every time you run out you can just scan it and it drops it into your shopping cart and it becomes, in a way, butter on subscription service, rather than just a product I might go and buy at the supermarket.

Down on the bottom left, the third generation of this product is a Samsung fridge, which you can see here has Amazon integrated into the door display of the fridge. The fridge itself… I know this is a terrible looking fridge, like who has artichokes and beers? Maybe [25.18] or something. But this is not your normal fridge, right? Ours has got a lot more stuff in it. But you put things in and the fridge scans it, you take them out and the fridge scans it, and if you don’t put it back in for that third pass, it just drops it into your Amazon shopping cart. Then of course you can take it out if you don’t want to buy it, but most of us would just go, ‘Yep, buy that again.’

And this is going to create brand loyalty in a way that we haven’t seen before. So in the US, the biggest selling butter is Land O'Lakes butter, so this is going to make Land O'Lakes butter the regular butter of choice for these families. Once they’ve bought it, they’ll just keep buying the same butter. It’s not just putting butter into the shopping cart, it’s putting Land O'Lakes into that shopping cart. This has got some quite interesting implications for the way we shop.

Finally, this is another one that I’m quite keen to own. Many of you will have had ovens that you can programme to start or to stop at particular times. Well this oven the Whirpool oven, is integrated with a recipe app, and so what I find more interesting is that I can put the recipe that I’m going to cook, I can tell the oven that I’m making this. And for everybody here that likes to make meringues or pavlova or something where you know that you’re messing about with changing temperatures, the oven doesn’t require me to programme it; the oven will read it directly from the recipe. I think that’s quite exciting. Not only that, I can use it from my phone. So pre-lockdown I used to travel a lot and I was always delayed on Air New Zealand. So wouldn’t it be cool if I set my oven up to cook so that when I walked into the house at 7.30, dinner was ready? But it turns out I’m delayed, and so from the Koro Lounge, I can basically text the oven and say, “Hey, could you not turn on right now. Could you turn on half an hour later? Oh, we’re delayed 45 minutes. Can you make that 45 minutes later?” Or whatever it is.

Or maybe then what happens is I get stuck in traffic on the way home from the airport. I could ask the oven to keep it warm or I could ask the oven to turn it off. So it’s not long where I believe we’ll see an integration of the fridge and the oven, so that in a sense, the oven through the app will be able to tell me, “Hey, you’ve got some potatoes, some carrots and some stock in your fridge. Maybe tonight you should make soup,” and then it can programme everything the next day to make that soup. So these changes are coming upon us, but they come one at a time, and that’s that idea that the future is not evenly distributed. But if we watch long enough, we can see patterns of things coming.

Speaking of patterns of things coming, I was very vocal at the sessions we had in March that COVID-19 situation is not a black swan event. That we have pandemics roughly every three, three and a half years and they largely have, in recent time, been zoonoses, so animal diseases that have jumped to humans. And so we have to expect that there will be more of these. Now, in New Zealand, we haven’t been deeply disrupted by these in the past, but we have had the Christchurch earthquakes, we have had the Wellington earthquakes, we have had the terror attacks in Christchurch, and if you’re in the sector that I mostly spend my time in, we’ve had disruptions to the dairy and beef industry from M-Bovis.

Any one of these gave us the opportunity to stop and say, “What would it be like if we couldn’t run our business the way we currently expect to?” And you may know I’m a Director of Radio New Zealand, and if you’ve been listening to Radio New Zealand during the rahui, you’ll know that we’ve been running from people’s bedrooms, we run Morning Report out of two bedrooms in different parts of Wellington. We’ve been able to do this because the Wellington earthquake, even though it was really disruptive to us, we saw it as a gift. And what we did, was that we took that Wellington earthquake experience and we built resilience in to Radio New Zealand so it could run in Auckland. And then we said, “Hey, what if Auckland’s taken out as well?” And we thought about how it might be able to run in Christchurch.

Then we asked ourselves, “What if we could never come in?” Now, we didn’t think that that was a possibility, but we decided to design the backbone of the business so that if we could never come into an office again, we could continue to run. So one of the other things I’d really like you to take away from this talk today, is I’d like you to think that this is not the one. This pandemic is not the big one. This is our practice run for the big one. We should be expecting to see another pandemic in our working careers. Not only that, we will be disrupted by something else. It might be another GFC, or it might be an earthquake, or it might be some other kind of natural disaster. But the truth of it is that we have these at regular intervals.

I’ve been through multiple financial crises. We had the Asian banking system collapse in the 90s, I bought my first house when interest rates went up to 23%, as a technology entrepreneur I went through the tech bubble, and we had, as I mentioned, the GFC. So these are going to happen again. We’re not going to get out of this and think, ‘Phew, done.’ What we need to do is treat this one as a practice.

Some of you will have gone, ‘Well, how did you know was coming and why did you think about it?’ So I just want to take you through a few things that I do. So I work these days as a strategist, and a big piece of the work that I do, is I’m looking for those signals from the future, so the things that Williams Gibson says, “The future is all around us, it’s just not evenly distributed.” So sometimes it might start with a fridge magnet. But I want you to look at this next slide, because what I saw, was on the 31st of December last year, China investigates respiratory outbreak sickening 27 people. I thought that was kind of interesting. At that point, I tagged it and put it into my database of signals, but I didn’t know what it was going to turn into.

I track zoonoses because I’m pretty interested in M-Bovis. I’m concerned that we’ll have a foot and mouth outbreak in New Zealand and that would be really devastating, and I’d like us to think about M-Bovis as a practice run for foot and mouth. And actually, in many ways, we should have been looking at M-Bovis as a practice run for a pandemic. So this pandemic can also be a practice run for foot and mouth for us. So I started watching that, and you’ll see here there’s also an article from January that was about the discovery of a new Coronavirus, and Coronaviruses are flu viruses. It was a new Coronavirus that had a bat origin, and I thought, ‘Oh, I wonder if that’s got something to do with this other respiratory thing I was thinking about.’ And then the bottom two pictures, these came up in different newspapers, different online newspapers for me, on February 7th. February 7th was when I knew we were in deep, deep trouble and I’d had a bit of an inkling before that.

But what we had, was we’d had a doctor who was a whistle-blower about the respiratory disease who died. And on the same day in another trade newspaper that I read, we had this issue about global container shipping trade being disrupted by the virus and by people being sick. This is the point that I knew that this was not a black swan event; this was something that we needed to be working at hard, and particularly for those of us in the primary sector in New Zealand. You’ll see there that this is what happened to the Dow, is that it took a big crash. I thought, ‘There are never just losers in a situation like that; there are winners as well.’ So on February 7th, I started tracking a number of these stocks and so I looked at people like Zoom, I looked at people like Slack, I looked at companies that are dealing with vaccines and I thought even thought New Zealand’s Fisher and Paykel Healthcare.

I took about 20 stocks and I started watching them, and they didn’t all crash of course, because there are a number of people who are in a good position to be dealing well with what’s going on right now, and particular robotics companies have done particularly well. I want, too, to think these are not evenly distributed in terms of the impact on companies. Different companies will win in this situation, while others lose. I started to track adaptations which is what this next slide is about. You can see the top; there’s an adaptation where delivery in China, where food delivery is quite important, little robots being used to maintain distance. We’ve seen more and more food producers go online, we’ve seen Netflix really impacted because of so many people watching at once, and that bottom right is a bar who has opened 102 Zoom different rooms where you can go on pub crawls, you can get their beer delivered and then hang out with other people who are drinking it. There’s a massive number of adaptations.

The thing I think that I’d like to leave you with is this idea that if a silver lining can be found, it will be in the failing barriers to improvisation and experimentation. Right now, I’m seeing government digitise faster than it ever has before. This has to be the silver lining of what we’re seeing out of this current crisis.

I’m going to leave you with this picture of New York and it’s only 13 years after the first guy drove his car down 5th Avenue. Here, you can see that there are no horses left. Within 13 years, no horses left. So we think we’re in a time of great disruption, but actually, there have been great disruptions before. Interestingly, the concerns that everybody had about jobs and so on at the beginning, the change in business model here created more jobs than ever before. Every time we’ve had major technological change, new jobs have been created and those jobs have been of higher value. So the number of engineering and mechanical jobs that were created out of the car have been phenomenal in comparison to the blue collar jobs that were lost with farriers and horses.

We are expecting to see exactly the same thing as technological change keeps coming at us and the business models change into the future. I want to really thank you for sticking with me today. I know there was a lot of data in that. I hope that was useful to you and I hope you’re really going to think about how it’s not the technological change, it’s the change in business model and these little inklings of the future are already around us – they’re just not evenly distributed. Kia pai te rā.

Title: For more information about our work and to download presentations, visit

Watch the original video.