 Live from the Congress Center in London, England, it's The Cube at MIT and the Digital Economy, the second machine age. Brought to you by headline sponsor, MIT. Welcome to London, everybody. This is Dave Vellante with Stu Miniman. And this is The Cube. The Cube is our live mobile studio. We go out to the events. We extract the signal from the noise. And we are so pleased, again, to be collaborating with MIT and specifically the MIT Sloan School. There's a relatively new book out, The Second Machine Age, by Eric Brynjalsson and Andrew McAfee. And that really is the topic of discussion today at this event in London. The MIT Sloan School of Management bops around the world. They do more traveling than The Cube. And really, we're here today in London to learn about this new book, to understand some of the innovations that are going on in the digital economy. And we're here with David Verrell, who is the Executive Director at the MIT Initiative on the Digital Economy. A graduate of the Sloan School. David, welcome to The Cube. It's great to see you here in London. Thanks. Very great to be here. So, it's exciting. A lot of action on this new book. You guys have really been around the world talking about some of the innovations that are the digital economy. And you got it all started a couple of years ago with some of your colleagues. So, talk about the IDE and what it's all about. Yeah, the second machine age really was the launching pad for this initiative on the digital economy. And what made, I think, the second machine age a bit of a different approach to looking at how technology is impacting the world is that it was taking a really optimistic approach. An approach that was not based upon a bit of fear-mongering. Robots eating our jobs and the hollowing of the middle class. These are all negative things. But I think what the book talks about and what the initiative is focused on is the optimistic approach of how we can address these issues and some potential ways of solving some of these grand challenges of our times. Yeah, and so you were obviously very involved in the New England start-up community and so you're by definition an optimist. But there are some nagging challenges that come up in the book and Andrew and Eric put forth some solutions to those. How have you seen those affect business? I know it's early days, but have you seen some traction on those proposals? Yeah, it is early days. And one of the reasons why we've started the initiative is to start to really perform some of the hardcore, relevant and rigorous research that really help us understand better the solution space. So what the IDE is creating is a platform for this discourse, this analysis to take place. We don't have all the solutions yet. It's going to take a decade or more for us to come up with real solutions to some of these grand challenges. But we think we're in the right place at the right time with the right approach. And MIT has a history of doing rigorous and relevant research. It's sort of in our DNA. We are doing a huge number of convenings like today, but many of them are much smaller, more intimate, more topically based. We have a contest that we're starting in the fall on inclusive innovation. We have a fellowship program where we're hosting people for a day, a week, a month, a summer, a semester, so that we can pick from their brains and bring people not just from academia, but from public policy, from industry. And lastly, obviously, the work that we do will find its way into the curriculum, both the MBA curriculum but also in executive education. So as you said, we're early days in this, but I think we're setting the platform for trying to better understand and analyze these grand challenges. It's interesting that you don't stay in Cambridge and do this. You go out all over the world in Sao Paulo, you're here in London, you have other things planned. Talk about that philosophy. Yeah, I mean, I think a lot of people think of academics as people that sort of sit in their offices and think deeply about the challenges within their particular functional area. We really think that these are global issues and we don't believe that we have all the answers to them. We have a methodology, we have a platform, we have an objective perspective, but we need to go out and make sure that we understand everybody's perspective and so we're developing a community of people, not just academics talking with academics and writing academic papers. The next book that Eric and Andy are starting to write now will be completely focused on business of the future of capitalism and I think that will resonate more with our alumni base who are senior executives in businesses and also all members of the business community because there is a radical change going on. I think everybody realizes it, senses it, but I think there's just a bit of misunderstanding about what directions to go in. Well, I'm happy to hear that. Of course, one of the pieces in the end of the book and the recommendations was no Politburo, please. So, you know, some tailwinds for capitalism. I want to come back to sort of the outreach. How do you choose where to go? Why London? Why, you know, Sao Paulo? You know, you're going all over the far reaches of the world. How do you select these places? In some ways, it's really simple. It's really where our alumni base is concentrated. But also, you know, these are the capitals of the world and there's some very interesting things happening all over the world. It's not just Silicon Valley where, you know, innovation and new business models are taking place. It's all over the world. And in some ways, countries outside of, you know, the primary places where we visit are able to be more innovative because they don't have some of the structures in place that prevent them from making radical change. So, you know, Asian countries have really been able to leap ahead in many ways using smartphones before there are landlines anywhere in places like Africa and elsewhere. So, I mean, we think that there are lots of solutions everywhere in the world. Almost everybody is connected these days and there's no reason to think that we have all the answers. So, David, one of the big opportunities is educating the next generation of the workforce to take advantage of this new resolution. So, how does, you know, IDE fit in with the broader charter of MIT and the Sloan School? Yeah, so, you know, education is what we do, but really it's research based. So, all of the research that the faculty undertake finds its way, creeps into the curriculum. And typically that manifests in the MBA curriculum, but also in executive education. So, our first class wear is a big data class. It's delivered both in person and digitally. It's by Eric Brinkelson, one of the principals of our event today. And Sandy Pentland, one of the world's greatest social scientists also at MIT at the Media Lab. And today, online, offline type of course wear and we will continue to develop those types of short, impactful, broadly distributed types of education. And Eric is teaching heavily in the fall. He has what's called an analytics lab. It's focusing on helping students to get involved in analytics oriented projects, but they're all industry sponsored. So, corporations submit analytics issues that they're grappling with and perhaps don't have the capability internal to address those. And teams of four students will crank on these projects for a semester and hopefully give them some insight. So, I would say from the IDE perspective, the education's sort of in the development phase because we're really just now creating the content to fill the educational gap. Yeah, so one of the things you're also doing, I know at these events, is you reach out to the broader MIT community. Can you talk a bit about how education goes beyond kind of the even just the graduate work and alumni's, how they participate in this? Yeah, sure. So, the Sloan School has a fantastic executive education program. And MIT is one of the leaders in educational X. The online open courseware, MIT was one of the founding academic institutions for, for edX. But currently, most of the courseware from MIT on edX is on the engineering side of the house and slowly but surely we're adding a little bit more of the management to that curricula. I wonder if you could talk about MOOCs. In the book, both Eric and Andrew give sort of props to MOOCs as a possible solution to the challenges that we face in just escalating education costs. You give a great example of a Stanford course where the top Stanford students scored like 412 thought of, you know, end-thousand students, which is fascinating. What's the Sloan School doing with regard to MOOCs? What's your take on it? And what do you see as the potential there? Yeah, it's obviously huge potential. You know, I think a lot of people are prognosticating that it's disintermediation of higher education. I mean, I'm educationally prejudiced. I'm part of one of what is likely one of the best educational institutions in the world. I think there'll always be a physical component to it. But when you think about what education is, it's really the development of content. And our role as educators is to distribute that content as much as we possibly can. So this big data course that I mentioned has both in-person and digital capacity to it. And I think those types of hybrid activities will ultimately be the best. But when we develop our curricula, we really do it in mind so that it can be completely and broadly distributed. I mean, there are brilliant people all over the world, and not all of them have been two formal educational programs. So, you know, we want to be as broadly distribution focused as possible. It's kind of a Wikonomics philosophy there, right? Get it out there and it creates value, which again, in the book, the authors talked about the intangible value of things of that nature. And as you look around, you talk to startups and you help companies grow, it's a whole lot different starting a company today than it was, say, 20 years ago. The access to these so-called intangible resources are so much more plentiful. I wonder if we could talk about that a little bit in terms of the role that the MIT Sloan School plays in terms of helping companies, you know, get off the ground, whether it's just, you know, motivational, educational, you know, and other resources that you provide. Yeah, MIT has a huge ecosystem to foster innovation and the startup community. The Sloan School has the Trust Center for Entrepreneurship. They hold business plan contests. They have regular courseware. They have both business plan development, not only at the Sloan School, but an undergraduate program, also in the engineering school. And within a mile of MIT, there are several thousand startups and they're there for a reason and the venture capitalists are there for a reason and the big companies and their innovation centers are there for a reason. That's where things are happening. That's where the ideas come from. That's where the underlying intellectual property comes from and there's really just a huge concentration of innovation. And your point about, you know, it's easy to start a company, well, I would definitely agree with that. It's easy to start a company because you can hire developers very inexpensively anywhere in the world. You can buy storage either as you go as your startup develops. But I would probably suggest to you that it's not any easier or cheaper to build a really big company today as it was in the past. And so the amount of venture capital coming into the United States nearly doubled last year. The number of angel, the amount of angel capital is, you know, $25 billion a year. So there's a huge amount of capital coming into the system and that capital is going largely towards innovation in the bigger cities. But the angels are actually playing a very interesting role. There are angels and angel groups in every state in the country in the United States. They're on Main Street, not Wall Street. There's a really interesting dual ladder, I guess, of innovation where obviously in areas where there's a concentration of education and infrastructure and all that type of thing. But innovation's happening everywhere. Well, you mentioned angels and I know you are active in, again, that whole community in Boston. That has changed as well. I mean, it used to be, sorry for the pejorative, but it used to be angels were considered dumb money. Now you have very sophisticated angels, you know, driving, actually driving VC firms, you know, behavior, you know, you see the angels getting in on the early stage startups and now you see, you know, larger VCs getting in or trying to get in as well. What do you make of the scene in New England, you know, specifically and how it compares to other regions of the world? Obviously Silicon Valley is this unique vortex. But it feels like the New England area, in particular Cambridge, is coming back in a way, not just in life sciences, but in core information technology and enterprise technology. What are you seeing there? Yeah, you're right. Angels have become very sophisticated investors. They've always been sort of the quiet money and so I don't think they really received their due. But the number of angels has doubled in the Boston area. The number of angel groups has doubled. They've become very sophisticated and when the economy went a bit south, angels stayed into the market quite a bit and some of the VCs receded and started to focus on companies that were later stage, required larger amounts of money and they needed to deploy a fair amount of capital because they had ever larger funds and the angel response was really quite interesting. The angels and groups started syndicating. So the angel ecosystem is kind of like the venture capital ecosystem was 15 or 20 years ago where there's a distribution of risk amongst like-minded investors. There's a larger amount of capital being put into companies at earlier stages so the seed rounds that are being done now are what the A rounds used to be, sort of one to three million dollars and that's carrying these companies a lot further and it's sort of allowing them to leap over the capital gap between the angel ecosystem and the venture capital system and there are a lot of very good venture capital firms in Boston now that are much smaller. They're the 20 to 100 million dollar size of funds as opposed to the billion dollar funds that really need to deploy huge amounts of capital in every single portfolio. It's a comment you made earlier which is I would agree with it. It may be easier to get into a start-up business but it's probably harder to build a large successful company. You think about software as a capital efficient business but you look at the amount of money that's being raised by software companies. I mean the poster child for that example is Cloudera $700 million investment from Intel. But software's still supposed to be capital efficient. Where's all the money going? Is it promotion? Is it marketing? Is it competing with the big guys? Distribution channels? It's all marketing advertising, distribution, product development and people. That's the way it's always been but when you want to sell a product globally you've got to invest that capital. So how does the Sloan School from an educational standpoint adjust or does it adjust? But how are you emphasizing sort of that shift to young students that want to be entrepreneurs in terms of how they should think about starting a business and growing a business? It's pretty well advanced at Sloan. Bill Ollett who runs the Trust Center has a book out about disciplined entrepreneurship and it really is you know in some ways a how-to guide but I think more importantly entrepreneurship isn't necessarily something that has to be in your DNA it's something that can be learned and taught and a significant percentage of the students that go to the Sloan School are going there because of the entrepreneurship approach the school has. So Mark Endreson recently made a quote saying something to the effect of it's easier to raise money now than it is to actually get customers and hire good employees. We had a crowd chat the other day some of the guys from NEA kind of disagreed with that and they were to raise money in the coming years. What do you see as sort of the capital markets? You know the venture world is a sign wave it's up, it's down, it's up, it's down and you know I can't predict that I think that most people want to have capital to invest in good times and in bad and some of the investments that I've made when the economy is down have turned out to be some of the best ones so I think the cyclical things are way from you know Endreson also said software is eating the world and I think to a certain extent that's true and I think because of this digital economy we're sort of at a point where there are going to be some really disruptive business models way more than the ones that we've seen already. I mean just look at the sharing economy that has brought us Airbnb and Uber and companies like that. I mean nobody sort of envisioned the next wave of companies that will be equally disruptive. Yeah it's interesting as I've been preparing for this you look at the digital economy makes so much of this technology just ubiquitous you take some of the things like Uber or Waze out there they're taking some of the pieces that were out there and some of them are open source or some of them are just data sets that are available and they're taking a business model approach or just cobbling some things together so it's really that fusion of the technology and the business I think back you know we had great wave of companies as Israel that would come and build a great next new thing and then maybe get acquired and now you really starting to see a lot of these tech and business ones come together which I guess falls right into your guys' wheelhouse. Yeah and that's a great point that I'll run with because one of the areas of research that Eric Brynjolfsson has focused on is measuring the economy. Eric's been the type of economist who's always measured things, measuring worker productivity was his initial claim to fame and we're not really measuring the sharing economy we're not adequately measuring employment and compensation and things of that nature for people that are working in generating income from Airbnb or Uber and we're not we're not measuring the contribution of content that we're providing freely onto the internet that other people are commercializing so one of the areas of research that Eric has focused on is trying to come up with a better measure of economic health because you can only manage what you measure and if you're not measuring something accurately it's difficult to have the right management for it. Kind of beyond GDP. Exactly. What is the value of Wikipedia? All this free content. I want to come back to something you were talking about before in terms of startups and innovation and Stu you touched on this in the premise of the authors or one of the things that they mentioned in the book is Moore's law may be waning in terms of the technical attributes specifically of Moore's law but the doubling the innovation economy is not and that's because of combinations of technology so do you see how much of the emphasis is on that type of investment do you see is that really the lion's share of investment today is finding those combinatorial technologies or is it still I'm looking for that home run and core tech that can be the next intel. There are so many companies being started that they're covering every single aspect of what you summarized the hot spaces now are internet of things types of companies where we're metering everything everything has a sensor in the future every light bulb in every municipality will be intelligent and it will be able to not just turn lights on and off or determine when there is an outage but hear a gunshot or be able to trigger something else things is a really interesting and hot space the social analytics space is obviously very hot you know a decade ago when socially oriented companies were all the rage now it's all about analytics and you know being a 50 something person in this marketplace I can't claim to really understand all the social stuff that my kids are doing but I can understand the analytics that are going into measuring what they're doing and I think that's really the interesting part of the innovation ecosystem you can understand that Twitter is a sewer of noise and there's got to be some gold in them there is there is so David I wonder if we could close and talk come back to the IDE can you talk about how people can get involved what resources are available to folks yeah we've spent a lot of time developing the IDE so that it serves many stakeholders so we have a long tradition of corporate relationships and our predecessor group the Center for Digital Business really helped us lay the groundwork we have a dozen or so corporate relationships we have a corporate members program and the IDE and Accenture is the first founding member of that we're very pleased to have them partnering with us and a number of other companies we also have a lot of support from private foundations the Markle Foundation the Ford Foundation the Nasdaq Foundation and they really are focused on some of the key more social issues associated with the changing economy the hollowing out of the middle class real wages going down in the last ten years for the average worker and so they're public policy advocates but we are the ones that are really providing the underlying analysis and research for that type of activity so we've got some great partnerships there and of course individuals care about these things I mean I think of what the world will be for my kids in 15 or 20 years and I try not to let a lightning strike of fear into me I like to think that we will have the wherewithal to resolve some of these grand challenges and that's really why we've developed the IDE you're an optimist David Varrell thanks very much for coming on the Cube and congratulations for all the success that you've had with IDE and we'll be watching long way to go and a lot of opportunity thanks appreciate very much all right keep it right there everybody we'll be back right after this word we're live from London this is the Cube we're at MIT IDE right back