Ten Rules of the Cheap Revolution

The turbulent economy did not start in December 2007 with the recession's advent. Nor in September 2008, when panic rocked the world's financial markets. It began unnoticed in the 1950s with two concepts: in biology, with James D. Watson and Francis Crick's description of DNA's double-helix structure, and in computing, with Jack Kilby's and Bob Noyce's independent inventions of the integrated circuit.

DNA and the computer chip lit a bonfire of innovation. They enabled the rise of companies and products that would double their capabilities every two years or so. This exponential increase would not, sadly, double everyone's wealth every two years. But it would change the nature of power and value. Welcome to the Cheap Revolution.

First let's plot the pace of technological progress and wealth creation throughout history on an imaginary graph. The graph would include little spikes marking the high points of Mesopotamian agriculture, Egyptian construction and jewelry, Chinese gunpowder and paper, Athenian education, Roman roads and aqueducts, and so on. But what you would mainly notice is the flatness of the graph. Innovations came and went. Replication of success was unusual. The vast majority of people lived no better in 1300 A.D. than they did in 1300 B.C.

The innovation and wealth graph tilts up a bit during the Renaissance and again after the steam engine launched the first Industrial Revolution. It takes another upward bend with the second industrial revolution in the late 1800s, built on the internal combustion engine, electricity and telephony. Efficient manufacturing, affordable cars, highway networks and mass communication and marketing keep the curve going in the 20th century.

On a graph the upward curve of innovation and wealth looks smooth. In real time, however, it's not smooth at all. Farm-technology innovation in the 1920s put cheaper food on people's plates but wrecked small farms in the U.S. that couldn't afford gas-driven combines. Uneducated farmhands flocked to cities, arriving just in time for the Great Depression of the 1930s. These poor souls were caught in the whiplash of innovation.

The Cheap Revolution is the great accelerant to change. It has made the 30-year-old-billionaire company founder almost a cliché. In one generation it has lifted most of the third quartile of the world's population (by income) from poverty to the middle class.

But the Cheap Revolution's poor farmhands are the people whose work can be replicated by robots, software, Vietnamese workers and amateur bloggers. They are the employees of companies that sell overpriced products and services in a Cheap Revolution world. In a snowballing effect they are also the home builders and car sellers for the newly displaced. Their combined numbers make for an employment crisis not seen since the Great Depression.

In the Cheap Revolution we find such companies as Apple , from which you can buy a new iPod, iPhone, iPad and a MacBook, all for less than $2,500. That's precisely what I paid in 1985 for my first Macintosh, with its small black-and-white screen, 512 kilobytes of memory and no hard disk. At an airport recently I saw a man with an Amazon Kindle walking around a bookstore, leafing through $24.95 hardcover books before buying them for $11.95 online. The bookstore got nothing from the transaction. It was like watching a bad sci-fi movie in which aliens suck up the brains of earthlings.

Winners and losers in the Cheap Revolution are being sorted out with ferocious speed. Which brings us to the question: Where are power and value going now?

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Here are ten Cheap Revolution rules that might guide us in picking winners and losers.

Consumers rule. Consumer technology is now ahead of most industrial technology, which forces businesses to change their operational practices.

Solid-state rules. Hard-disk drives will be used for long-term storage. Any information requiring quick access will be stored on silicon.

Interface rules. The friendliest interface will win. It's all moving in the direction of entertainment.

Transparency rules. All those 1990s predictions of middleman destruction turn out to be true. Poor bandwidth only temporarily delayed this inevitability.

Detail rules. The appeal of entertainment and sports on older TVs is weak but has blossomed with large screens and HD. Think soccer and the Tour de France. Similarly, business managers want lots of detail on their screens, too. Drill, baby, drill ... down for deeper detail. That's what consumers and executives want.

Smart-aggregation rules. Some forms of content will always need human curating.

Dumb-aggregation rules. And some forms of content won't. The trick is to figure out where algorithms beat humans, and vice versa.

Speed rules. "Newsweeklies" now sell for $1. Mind you, not the product but the company.

Self-learning rules. We are at the beginning of the Death of Credentialism. The ROI for a majority of college educations will be negative.

Self-discipline rules. We are on our own. The most important software of all is our internal operating system.

Read Rich Karlgaard's daily blog at http://blogs.forbes.com/digitalrules and banter with him there. See Rich Karlgaard's new TalkBack video series at http://video.forbes.com/talkback/guide or follow him at twitter.com/richkarlgaard.