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Why do analyst predictions always get it wrong?

We used to live and survive in the savannah in a simple, local and linear world. When we had to kill animals for food we would think and act in a linear way to realise our goal. A relatively easy, stable and predictable world. The linear and local world is ingrained in our mental model of the world.

However, in the last few decades we have witnessed the increased importance of exponential phenomena, mainly driven by technology. The tipping point came in 1965, when Intel co-founder Gordon Moore, introduced Moore's law which predicted that computing power would double every two years.

So what is the real value of tech analysts and market researchers in an exponential world? Do they provide business benefit? Or are they particularly valuable in a more linear and predictable world?

Venture capitalist Vinod Khosla conducted an insightful piece of research in which he reviewed predictions made by mobile phone industry analysts from 2000 to 2010. He analysed major research firms such as Gartner, Forrester, McKinsey and Jupiter to see how they predicted.

  • The growth of the mobile phone industry in two-year increments over the course of that decade. Here's what he found:
  • In 2002, these experts on average predicted 16 per cent year-to-year growth.
  • In fact, by 2004, the industry saw a 100 per cent increase
  • In 2004, their predictions called for an increase of 14 per cent; by 2006, growth had once again climbed 100 per cent.
  • In 2006, the analysts estimated sales would increase just 12 per cent . . . they doubled again
  • In 2008 these very same experts forecast a 10 per cent growth, they doubled again
  • In 2009, the Gartner Group forecast that by 2012, Symbian would be the top operating system for mobile device.

Gartner also predicted in the same report that Android would hold just a 14.5 per cent market share. The reality? Symbian shut its doors at the end of 2012 after shipping only 2.2 million units in Q4. In contrast, Android has overtaken the Apple iPhone OS and today dominates the mobile world.

In 2008 and 2009, professional tech forecasters made their best guesses about what IT would look like in 2013. These forecasts are often meant to help IT professionals figure out where they'll get the most bang for the buck in the historical three- to five-year timelines for IT planning. They predicted that PC shipments will record double-digit growth from 2009 to 2013, buoyed by growing demand for laptops and netbooks.

What happened? The iPad happened in 2010, and individuals have been buying tablets. Worldwide PC shipments fell by 10.1 per cent in 2013. Worldwide, an estimated 314 million PCs were sold in 2013, far below the 444 million PCs predicted back in 2009.

What is going here? The linear mindset from the savannah just can not deal with black swan events and exponential growth of technological innovations. It will become even worse. We see the rapid evolution of biotechnology, nanotechnology, neurotechnology, artificial intelligence, robots, drones, solar energy, 3D and 4D printing and sensors. This means the analyst forecasts for the real world instead of the digital world will become less accurate over time as well. We just are not programmed to deal with this kind of speed and disruption.

But then, let's be fair. It's not just analysts but also world famous entrepreneurs fail sometimes:

"I think there is a world market for maybe five computers." -Thomas Watson, chairman of IBM, 1943

"There is no reason for any individual to have a computer in his home." - Ken Olsen, founder, Digital Equipment Corp. (DEC), 1977

Yuri van Geest will be speaking at the Singularity Summit, Amsterdam in November