Good evening! It is a great honor for me to share this stage with the Lord Mayor, chief executive of Hannover, with Mr. Yang, and in a few minutes with Chancellor Kohl.
I have been looking forward to this evening for a long time, because I have known for many years how important CeBIT is to the global Information Technology industry. So before I go any further I want to thank you very much for inviting me to participate in this important forum.
Now I have given a lot of thought as to what I would say to you this evening. On the one hand, I am here as a representative of the Information Technology industry on the event that is bigger by orders of magnitude than any other technology exhibit. That is quite a statement in a industry that is good at many things, especially celebrating its own creations. On the other hand, like most of you, I have spent most of my professional life as a customer of this industry. So I know that after the splash and promises comes the harsh light of morning and often the customer is left standing alone wondering what happened, or as the head of one of our most important German customers put it, "Yours is an industry that is very good at weddings and not so good at marriages." So tonight, while I will talk about the power and potential of Information Technology, I hope the temper of my remarks with the perspective I had when I came to IBM five years ago, the perspective of a customer.
Now it is certainly easy to see why raw technology dominates these events. It is adoptive; it is breathtaking; and it is penetrating every aspect of our lives. Today there are more PCs sold annually in the world than TVs or cars. The typical luxury automobile today has 20 to 30 microprocessors in it, more computing power by far than was inside the landing-craft that took the first astronauts to the moon. Last year there were five times more E-mail messages sent than the number of pieces of paper mail delivered worldwide, 2.7 trillion E-mails. And I got more than my share. There is another way to look at what is going on. In the mid-1970s, the first super computers appeared. They were capable of about 100 million calculations per second. And they cost about one million dollars. Today the laptop computer that college students carry in their bags, packs, is twice as fast as that first super computer, and it costs less than 3000 dollars. The trend in data storage is even more impressive. In the early 80s, the standard unit of computer storage, one mega-byte, or one million bytes of information, cost about 100 dollars. Today, it is 10 cents. In two years, it will cost 2 cents. These gains are driven by continuous advances in how we pack information into smaller and smaller spaces. If the US Library of Congress could shrink its collections of 17 million books by the same factor we just discussed, it could replace 800 kilometers of shelf space with less than 40 meters of space. These advances are going to continue and accelerate the rate microprocessors, storage, communications, memory, and all the other engines that are propelling this industry or continue to lead to the products of the faster, smaller, and less expensive, just as they have for 30 years. But as we stand here today, the opening of CeBIT, we are on the threshold of a very important change and the evolution of this industry. In many ways, this industry, a very emitory industry, is about to play out in its most important dimension. That is because the technology has become so powerful and so pervasive that its future impact on people and governments and all institutions will dwarf what has happened today.
I believe there are two trends that are most significant here, and bare the closest watching.
The first is what we call deep computing. The term is inspired by our chess-playing super computer Deep Blue, which I believe many of you know competed with the Grand Master Gary Kasparov last year. Deep Blue is an amazing machine, capable of 200 million moves per second. But speed, while essential, is not enough. After all, Deep Blue's predecessor was quite fast, but it loss to Gary Kasparov two years ago. The difference in second time around was an infusion of knowledge, human chess knowledge, thousands and thousands of chess moves, games and outcomes, captured as mathematical algorithms. This is what led Deep Blue to mimic the workings of the human mind, and race through millions of possible chess positions and extract the best one. And it worked rather well. But Deep Blue is emblematic of a whole class of emerging computer systems that combine ultra-fast processing with sophisticated analytical software.
Today we are applying these systems to challenges that are far more vital than chess. Let me talk about two important application areas, starting with simulation.
Simulation is about replacing physical things with digital things, recreating reality inside these powerful computer systems. In the farmer suitacle industry, the ability to simulate the interaction of chemicals, and do it in the computer rather than in test-tubes and Petri dishes, can speed up by years the discovery and testing of new farmer suitacle. Mercedes, BMW, Fiat, Volvo, SAAM all design cars today on computers, no physical markups, no models. And aviation does so, pioneer many of these techniques, and Boeing broke new ground when it designed the 777 airplane entirely on computers. It was a very bold move, and even some of Boeing's engineers had trepidations. I had trepidations because three month after I joined IBM I went out to Boeing to see my good friend Frank SCHURZ , who was the CEO. And Frank said to me, "Since this new airplane was built on your computers, maybe you should go on the first flight." And I said, "It is my wife's birthday." And he said, "I did not even tell you the date yet. Coward!" Computer simulation saves time, saves money, and it gives customers a competitive advantage, and it can do more than that. Recently the US department of energy asked IBM to build a gigantic super computer to simulate nuclear weapons so that they will never have to be exploded for test purposes, ever again.
The second type of deep computing is what we call data mining -- some people call it business intelligence, the ability to extract inside from mountains of information, and see relationships and trends that previously were not available or invisible. Banks are looking at spending patterns and other demographic data to see which customers are more profitable over the long haul. Health-care companies are analyzing millions of patient records to find hidden indicators of disease. These tools are also helping slash the staggering cost of insurance fraud in the health-care industry, which is a hundred-billion-dollar problem in the United States alone. Insurance companies can now spot every billion practices. One company in the United States has saved 38 million dollars, having invested only 400 thousand in this technology. In one instance they found a doctor, who was sending it a bill once a week for a procedure that particular - usually was done once or twice in a life time. At some times the patterns and relationships that are uncovered are truly baffling. One retail chain discovered the following correlation -- for whatever reason, new fathers buy disposable baby diapers and beer on the same shopping trip. This led to many, many thoughtful ideas not at least which was they never discount diapers and beer on the same day.
So we believe that deep computing is a trend that will have a profound effect on commerce and on society. Of course a concept throwing big problems at computers is not a new idea. Its rules can be traced at the very origins of the industry. The difference today is that the systems are so much more powerful and so much more affordable that they can be used by businesses and governments and institutions of all sizes.
The second major development in Information Technology is of course for a topic, already discussed here this evening, and that is the rise of global networks, like the Internet to create a network world, or what some call a network economy. About 16 million people use the Internet today. And the estimates are that that number will grow to 500 million, and perhaps someday to a billion. Now what will these connected people going to do, or they want to do? Not too long ago, people in my industry thought that the action was going to be an information dissemination - news, weathers, sports scores, online magazines called E-zines, and short consumer information. IBM has had a different view for some time. We believe the real potential of the network world is for conducting transactions of all kinds, between parties of all kinds, an effect that seems to be what is happening. Consider that across Europe Internet sales of about one billion dollars last year are projected to reach 30 billion dollars by the year 2001. One study says that the worldwide Internet commerce activity will double, double in the next six month alone. And most of that is business to business transactions. We see the total market for Internet commerce hitting 200 billion dollars by the end of the century. And that is a conservative forecast. It is not just about buying and selling. About a year ago IBM coined the term E-business to describe all the ways that people will derive value from the Net. Transactions among employees within the business to prove how products are developed, how ideas are shared, how teams are formed, how work gets done. Transaction between a business and its suppliers, its distributors, its retailers, to increase cycle times, speed and efficiency. And the very important transactions and interactions between governments and citizens, educators and students, health-care providers and patients. It is a very exciting stuff. And the greatest changes and challenges are not in the technology. In fact, connecting to the Net is relatively easy. The big challenges are in the fundamental transformation of the way things get done in the world. That is because networks are great levelers. They dissolve barriers to entry the neutralized traditional assets like physical stores and branches. Networks dissolved the boundaries within and between companies, countries, continents and time-zones. It is not hyperbole to say that the network is quickly emerging as the largest, most dynamic, restless, sleepless marketplace of good services and ideas the world has ever seen. And naturally this comes with very profound applications. For one thing, they are all ready, time-honored processes that govern the way things work in the world, the way we buy and sell, the way we distribute things, the way we teach, and the way we interact with each other. That I will tell you that nearly every one of those conventions is being challenged by the network world.
