In the days before the close of 2005, Fool contributor and occasional Motley Fool Rule Breakers analyst Tim Beyers spoke with Paul Saffo, director of the Institute of the Future, about what to expect in 2016.
Tim Beyers: Paul, thanks very much for making time today. Before we get started, I'd appreciate it if you'd give us an introduction to what you do and how you do it.
Paul Saffo: Sure. I am a long-range forecaster.
Tim Beyers: What does that mean, exactly?
Paul Saffo: I don't predict; rather, my focus is about understanding uncertainty and translating uncertainty into a meaningful view of what may lie ahead. The Institute is a 35-year-old research foundation dedicated to long-range forecasting and, in particular, the intersection of technology and its impact on society. So I do spend a lot of time looking at technology, though it is not my exclusive focus.
Tim Beyers: Great. Let's get into the decade ahead. I'm interested because we have a service at The Motley Fool called Rule Breakers, wherein David Gardner and his team of analysts identify the best public companies in industries they believe to be highly disruptive. Those firms, David reasons, have the best chance to deliver multibagger returns because they are shattering industry conventions as we've come to know them. So with that definition in mind, tell us which industries you believe to be most vulnerable to up-and-coming Rule Breakers over the next 10 years?
Paul Saffo: First of all, there are some overarching trends to consider. The most important trend is the growth of the Internet, which is running just under 20% per year right now. And as for the number of [Internet] users, we have either just crossed or are just about to cross one billion. That total will probably double in the next 10 years.
So that is the macro trend. But it's interesting to note that while this revolution started in the United States, today less than 25% of Internet users are here. The fastest growth is happening in places like China and, to a lesser degree, India. Europe is growing as well. And when the Internet is growing that quickly, it is not just that you are getting more users, but also that the Internet itself is changing in fundamental ways.
So I think it is a safe assumption that a disproportionate number of the most interesting Rule-Breaking start-ups in the Internet space will come out of Asia, not the United States. It is not for the fainthearted, but I would definitely look at opportunities abroad.
Tim Beyers: Which companies come to mind? Are there any out there right now?
Paul Saffo: I have no professional expertise in picking stocks, but an interesting company that could be a bellwether is a Korean firm called NHN. You can find it by going to www.nhncorp.com. They are a darling of the [Korean] stock exchange right now. They had a 2002 IPO and their growth has been crazy because they are the No. 1 search portal in Korea, the No. 1 kids portal in Korea, and they are also the No. 1 games portal for a category that we really don't have here, which is casual games.
Tim Beyers: What's a casual game? Something you play to relax?
Paul Saffo: Sort of. Let's say you want to play bridge with some people. You can do that, and win points as you go along. That's useful because you can use the points to buy things. It is for communities of people who just like playing these games. And it is not nearly as intense as devoting your time to building avatars and EverQuests.
There's also a cultural reason why NHN has been so successful with casual games. Koreans carry a national identity card with a unique serial number. So unlike in the United States, where as the joke goes, on the Internet no one knows you are a dog, when you log on to the Korean Internet and to NHN's site, you have to give your national identity number. That way they know exactly who you are.
This shows that there are different populations of users out there, and that there are different cultural norms. There are going to be different things that excite users abroad that may not be big in the United States. Investors would be smart to look for lots of surprises in the global Internet, particularly in China and Asia. Although I should also mention that NHN's innovations may also prove portable. The company has just opened an office in Silicon Valley.
Tim Beyers: Interesting. What else besides the evolution of the Internet is on the horizon? And what clues signal its importance in 2016?
Paul Saffo: To me, it is pretty clear what the next big, out-of-the-blue industry will be. And it will continue the pattern of a new industry emerging every decade or so. In the '80s, it was the personal computer. Steve Jobs and Bill Gates were the poster children for it. In the '90s, it was the World Wide Web, and Tim Berners-Lee and the Google (Nasdaq: GOOG ) twins were the stars. Now we are teetering right on the edge of a revolution in the robotics industry -- consumer robotics in particular.
Tim Beyers: So you must be following iRobot (Nasdaq: IRBT ) then?
Paul Saffo: Yes, but I am not making a stock recommendation.
Tim Beyers: No, no, I am not asking you to. It just seems that you would consider the company to be fairly Rule Breaking.
Paul Saffo: Absolutely. They are Rule Breaking because their robots, while not very smart, are strangely endearing. That's an indicator, you see. And that's what I do; I look for indicators. Things that don't fit because they often are whisperings coming down out of the future about what might be a big deal. Here's an example. Two years ago, iRobot published some very interesting data. It turned out that over 60% of Roomba owners had given their Roombas names. Now, that is odd. I can't remember the last time anyone gave a Roomba, or gave their vacuum cleaner, a name. It didn't fit.
I also noticed that friends of mine who had Roombas were wildly enthusiastic about them. These were people who, in my recollection, never showed any interest in owning a vacuum cleaner before. They were Silicon Valley nerds. And, finally, I learned that one-third of Roomba owners have confessed to taking their Roombas on vacation with them or over to a friend's house to show off.
In other words, the Roomba, even though it does in fact vacuum floors just fine, is scratching some sort of deeper atavistic itch that consumers have. Combine that with the fact that the Roomba is a very capable robot that is very inexpensive and cleverly designed. All of which says to me: OK, we're at a point where we can start mass-producing [consumer] robots.
Tim Beyers: What about iRobot's future? Does it have the chops to become a durable business that we'll see still thriving in 2016?
Paul Saffo: The interesting thing about iRobot, and why I honestly don't know if one would endorse them or not, is they put a huge amount of effort and resources into marketing, especially before going public. I don't know how deep their technical expertise is anymore. Which also begs a question: What matters at this phase of the game? Is robotics becoming a marketing game? Or is it a technology game? iRobot has a very strong brand, so if marketing is the key factor, they are in a good position.
Of course the other obvious question is: What's next? Yeah, they've built vacuum cleaner robots. What else do consumers need? Is it baby-sitter robots? Is it security robots?
Tim Beyers: I've got three small kids. I'll take the baby-sitter robot, please.
Paul Saffo: [Laughs] Regardless, what's next after the Roomba and the newly introduced Scooba isn't so obvious. Which is why I think Intuitive Surgical (Nasdaq: ISRG ) is also an interesting bellwether in this space. Its da Vinci telerobotic surgery system allows laproscopic options for operations that used to require cracking the chest cavity. Aging baby boomers had better hope and pray that they don't need a bypass until after there are more of the da Vinci suites out there, as it looks like a much better way to have heart surgery than having your chest busted open.
Tim Beyers: Well, we will pass that along to David Gardner, who made Intuitive Surgical a pick for Rule Breakers. He will be very pleased to hear you say that.
Paul Saffo: Yeah, I noticed he did that. And I noticed that the company is trading for, what is it, a hundred dollars a share right now?
Tim Beyers: A little more than that, yes. But let's move on. Five years ago, on The Motley Fool Radio Show, you said that you thought Amazon's (Nasdaq: AMZN ) Jeff Bezos would go down as the F.W. Woolworth of his age. Do you still believe that?
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Intuitive Surgical is a two-time Rule Breakers selection, and iRobot is a one-time Rule Breakers pick. Amazon.com is a Motley Fool Stock Advisor pick.
Fool contributor Tim Beyers plans to be well on his way to early retirement by 2016. How about you? Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what else is in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.