The choices we make as a country in the next five years will determine our quality of life and financial independence for the next two generations, at least.

Our leaders have charted a course generally towards the right destination, but at the pace of the past decade we’ll arrive years too late. The need for change that underpinned the Bob Hawke-Paul Keating era reforms of the 1980s to ensure that Australia did not become a banana republic pales when compared to today’s situation.

But the population as a whole doesn’t seem to understand what’s going on. We’ve been seduced into thinking we are on the right track with almost 26 years of uninterrupted economic growth. To understand how we got to this place, we need to first look back.

Inflection points

Over the past three centuries there have been three major industrial inflection points globally. The first occurred in the late 18th century with the invention of the steam engine. It catalysed the move towards industrialisation and the shift from 95 per cent of the global workforce working in agriculture to less than 5 per cent today.

The second occurred in the late 19th century with the arrival of the combustion engine and electricity. This is the time when the United States, with its entrepreneurial culture, started to excel in the application of inventions, even ones that weren’t theirs. This resulted in the global mass production of products and seeded the culture of consumerism.

The third occurred in the 1960s when transistors became a dominant technology, one which underpins every electronic device we now take for granted including cars, TVs, mobile phones and the internet-connected devices that will be in almost every home by 2025.

The world has now begun a fourth revolution, one made possible by the digitisation of many sectors of the economy alongside the convergence of domains that were previously disconnected.

Advanced computing is creating systems that get smarter without human interventions; nanotechnology is being built with new materials like graphene, which is one atom thick but 200 times stronger then steel and 10 times more conductive than copper; and our understanding of genomics and more specifically, epigenetics, is facilitating the programming of life. We’re even beginning to develop nanoscale biological robots. In a generation this revolution will touch all of humanity and cause us to question what it means to be human.

Platform economics

The economic consequences and opportunities are stunning: $15 trillion to $20 trillion of global gross domestic product over the next decade alone. At the same time, large structural changes are rendering entire industry sectors obsolete.

Incumbent business models are collapsing under their industrial-era cost structures, competition is emerging from distant domains and companies must contend with the cyber-security risks of managing mission-critical data supply chains, not just physical supply chains.

These structural changes are not yet part of the Australian psyche. Their abstract nature, coupled with our infatuation with technologies that make our lives easier, make us blind to them. What we are going through is a wholesale restructure of the way we work, live and play underpinned by a whole new basis of competing: platform economics.

Platforms are infrastructure that third parties, including customers, create additional value on top of, blurring the lines between producer and consumer. In the industrial era we focused on the manufacture, delivery and servicing of products in a one-way flow of value from corporation to customer; in a data-driven world corporations co-create value with customers and partners.

Think about our eBay posts. Or take Facebook. We create the content, the companies provide mechanisms to facilitate our interactions. We get some utility; they get to capitalise on our posts. When Alphabet, the largest media company in the world, produces no media content it’s more like a feudal system than a capital system.

Platform companies scale three times faster than any other cohort of companies in history and they have naturally monopolistic tendencies. The leading platform company in any given segment captures approximately 70 per cent of the market value. Analysis by visualcapitalist.com shows the five largest companies in the US by market capitalisation are platform businesses (Apple, Alphabet, Microsoft, Amazon and Facebook). In 2011 Apple was the only platform business in the top five.

Uber and Amazon are also fuelled by platform economics, with devastating results for incumbents. The declining value of Victorian taxi licences directly tracks the increase in Uber rides. Today more than 50 cents of every dollar spent online in the US is spent with Amazon. Their online customer acquisition and conversion ratios are almost five times higher than our online retailers. In a survey of 505 Australian retailers by Commonwealth Bank, almost a third were unaware Amazon was coming to Australia, and of those that did know, only 14 per cent had a plan in place to compete with them. The sector is about to get a life-threatening wake-up call.

Data driven

At the core of platforms are learning algorithms that make automated optimisation decisions using data feedback loops. These algorithms are mathematical formulas that go beyond preference engines (if you like A, you’ll like B). They make decisions that affect every aspect of business and our lives; whether we’re credit-worthy, whether there will be a spike in energy consumption today or whether a medical intervention is needed. Recently they’re learning and improving by themselves, at exponential rates and with no humans involved.

Data-driven platforms also enable the quantification of likely outcomes. This will lead to a reframing of the basis of competition as industries shift to guaranteeing outcomes. GE does it already: selling flight hours instead of jet engines. Monsanto does it in agriculture: guaranteeing a financial outcome for the farmer rather than focusing on inputs like seeds.

Platforms blur industry boundaries, too, by unbundling the vertically integrated offerings of today. Tesla is now an energy platform company, with the car and home as consumers and producers of renewable energy. Apple, too, is evolving into a healthcare company with its HealthKit apps, which have quietly moved the focus to health diagnostics using the company’s sensor-laden electronic devices and app developer ecosystem. Uber has its sights firmly set on transportation and logistics with the acquisition of Otto, an autonomous vehicle software company, it’s a move that shows the company is gunning for UPS, FedEx and our own Australia Post.

Domestic modifiers

Rather than fear this change, we can embrace it. I went to a meeting with Amazon in Seattle when it was just 25 people and met with Jeff Skoll, the founder of eBay, in the San Francisco Bay Area when there were 30 people in the company. Every large business in the world was a small company once. But some small companies stay small and don’t fuel economic growth and job creation at the national level and herein lies Australia’s dilemma.

There are approximately 2 million businesses registered with the Australian Business Register, but 98 per cent employ fewer than 20 people (the official definition of a small business in Australia). This implies high levels of fragmentation and low levels of differentiation, characteristics that make any market ripe for disintermediation by new platforms.

We’re domestic modifiers of other people’s ideas on the whole, as opposed to global exporters of products and services generated from our own ideas. The most recent Office of Innovation and Science Australia report shows in 2014-15 only 8.4 per cent of innovations from active firms in Australia were new-to-the-world innovations, compared to 74.5 per cent that were new to the business.

The frustrating part is we have incredibly smart people coming up with world-first ideas all the time. In my job, I work with them every day. Consider our nascent cyber-security sector that will become a $US251 billion global market over the next decade and that is fundamental to the Australian economy. We are the fourth largest holder of cyber-security patents of any country. Yet, so far, we haven’t been able to build a vibrant domestic cyber-security industry that’s nationally competitive, let alone globally so. There’s a co-ordinated national effort under way to change that.

Australia has all the raw ingredients to succeed. Our biggest obstacle is ourselves. We just need to be willing to think differently and bigger, to experiment and support each other.

It’s going to take a new entrepreneurial leadership class focused on growth. Mission-driven, calculated risk-takers with long-term vision. Australia’s business and political leadership have Australia’s future in the palm of their hands. If we move fast, we have a shot. That’s an exciting prospect, a future of unprecedented opportunity. Our own history in the making. If we’re willing to lead in creating it.

Adrian is the CEO of Data61, a CSIRO entity that is the largest data innovation group in Australia.

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