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The data factory revolution

"Today, more than half of the most valuable Internet companies are not in the US. It's never been the case for such a huge, abrupt shift in the nature of human work," Sequoia Capital's Michael Moritz said.

Michael Moritz Dan Farber/CNET

SAN FRANCISCO -- "Between San Francisco and San Jose something utterly remarkable is going on, something that has only occurred in one or two other places in the whole course of human history," said Sequoia Capital's Michael Mortiz, speaking at TechCrunch Disrupt conference on Monday.

He is talking about the shift from Industrial Age, which took root in places such as northwest England and Detroit and ushered in factories and centralized tools and distribution channels, to what he calls the "data factory." In the case of the data factories of Silicon Valley, increased bandwidth, storage, and computational power, as well as the explosion in apps, are transforming the nature of work. "There's never been anything like it in human history ... never before have people been empowered with tools like the smartphone," Moritz said.

The data factory doesn't just make tools accessible to the masses, it also does so for free or close to free. More than 20 million people in the US are self employed, and 30 percent of Americans work by themselves with the aid of the digital tools and services. There are thousands of companies enabling various aspects of the commerce chain, from recruiting and financial services to sales and compute services.

At the center of the data factory revolution are the large scale companies, such as Google, Apple, Facebook, Twitter, eBay, LinkedIn, and Priceline, who attract hundreds of million or billions of users. "The data factory sits in the middle, connected directly to consumers, who provide rich feedback," Moritz said. Unlike more traditional factories, data factories require fewer people and benefit from the unpaid contributions of users in the form of clicks, likes, reviews, and other inputs. LinkedIn, for example, added content to its site from high profile contributors. "They are doing it for free and the result is LinkedIn now ranks as among biggest business sites in world and traffic multiplied eight-fold due to unpaid contributions," Moritz said.

Dan Farber/CNET

At the same time, data factories provide the tools for millions of people to run businesses. eBay, for instance, has 25 million sellers, including 1.3 million who use it as a source of primary income, Moritz said. Amazon has enabled writers to become publishers -- one quarter of the best selling ebooks on Amazon were independently published. In addition, YouTube, Google AdWords, TaskRabbit, Etsy, Uber, Airbnb, Instacart, and thousands of other services have enabled small businesses to flourish.

While data factories are transformative, they aren't positively impacting the overall economy in terms of GDP growth and higher standards of living. "Life is very tough if you're poor. Life is very tough if you're middle class," Moritz said. The average income over the last several decade has not progressed for the masses. He attributed the lack of a positive effect on GDP to the decline of manufacturing in the US and the difficulty in attracting talent from outside the US and keeping them in the country.

Silicon Valley isn't about to turn into a rust belt, but the data factory revolution isn't tied to just a few places that nurture tech companies and have an abundance of skilled workers.

"The most important thing and reason it's not bringing benefit to America like the earlier revolution is that this is the first shift in a technology revolution that has occurred simultaneously around the world. It's not confined to a small area. Data factories are exploding all over the world, most noticeably in China, with companies like Alibaba, Tencent, and Baidu," Moritz said. "Today, more than half of the most valuable Internet companies are not in the US. It's never been the case for such a huge, abrupt shift in the nature of human work."