- [voiceover] funding of overheard with evan smith is provided in part by mfi foundation, improving the quality of life within our community. also by hillco partners, a texas government affairs consultancy. and by the alice kleberg reynolds foundation. - i'm evan smith, he's an investor and philanthropist who co-founded america online, and has spent the better part of three decades as a thought leader on technology, innovation, and the digital age. his new book, a new york times best seller, is the third wave, an entrepreneur's vision of the future. he's steve case, this is overheard. (audience applauding) - [voiceover] let's be honest, is this about the ability to learn, or is this about the experience of not having been taught by it. how have you avoided what has befallen other nations in africa? you can say that he's made his own bed, but you caused him to sleep in it. no, you sought a problem, and overtime, took it on and, let's start with the sizzle before we get to the steak.

are you going to run for president? i think i just got an f from you guys, when this is over. (audience applauding) - steve case, welcome. - good to be with you. - nice to see you. so when i heard about this book, before it was published, i heard third wave, i thought alvin toffler. i guess you also thought, - i totally did. - to some degree alvin toffler, so can you tell the alvin toffler, third wave, versus steve case third wave. - sure, no, i actually was in college in 1980, when that book came out, alvin toffler's third wave, - yeah. - and i was completely memorized by it. and it talked about this notion of electronic cottage, and different ways to connect to people, information, and i just knew it was right. and so when i was graduating, there was no startup culture back then, there was no internet companies to go to back then, so i worked for some big companies for a few years, but finally in 1985, co-founded aol, and i was sent on that path by toffler, so when i decided to write this book, i deliberately named it the third wave, and he was kind enough to read it, and provide a blurb for it. - so the toffler estate is not chasing you, with his lawyers and, no? - no we have a great, great, relationship, and i've been really grateful for how he inspired my life.

- but of course your three waves, including the third wave, are different than his waves, and his third wave? - yeah, his third wave was really the agriculture revolution, and the industrial revolution, then sort of technology, digital, revolution, really over the last 200 years. i'm focusing more in the last 30 years, the first wave of the internet, which is really building the internet, - creation. - and getting people to connect in the software, and the servers, and the on ramps if you will, to the internet. and when we started aol 31 years ago, only three percent of people were online, - right, - and they were only online - one hour a week - so that would be like, apple, that would be sprint, cisco, - microsoft, and sun, - right. - sun microsystems, - the early big guys who have hung around. - the pioneers who basically kind have said we're gonna stand up the internet, build that foundation, and educate people about why to get connected. - and, did it in a time when by the way, it was probably not super consumer facing, right? - wasn't at all. - that's why the very early stage... - wasn't at all, that's why it was hard when we first launched. most people didn't have pc's, most people who did have pc's, didn't have modems, remember you had to go the peripheral section of the computer store to get this thing called a modem. if you did get connected off, it was 10 dollars an hour.

- and it made that awful noise. - well, i loved that sound. - that's the screeching dial tone, - well for you, that's the sound of money. - i should wake up in the morning with that. - i still wake up, three o'clock in the morning, bolt up, by hearing the aol connection noise. - cha ching, cha ching, right? - cha ching, cha ching. - so that was the first wave. - that was first wave. just building there, second wave, really been the last 15 years or so, building apps and services on top of the internet. so it's facebook, and twitter, - google, amazon. - waze, and google. and basically because in that first wave the foundation was built. and everybody got connected, the last decade or so has been innovation, around apps and services, and some tremendous companies have been built in that second wave. - right, so the third wave is coming? or the third wave is sort of, kind of, here? - just beginning, just the early stages of it. - so what's the distinction? - the distinction is the second wave was really all about the app. it was about the software. the third wave is how you integrate the internet in everyday life. and how you use it to improve how our kids learn in classes, or how we deal with healthcare, or energy, or transportation. - well some of us would think mr. case, - some of us would think that, - or financial services.

- we're already at that point. because many of us will use an app to call a car, or we'll use our app at the supermarket, hold our phone up to the cash register, and pay. there are things happening in the healthcare industry, we happen to be sitting in a state, texas, that has the most people without health insurance in the country. - right. - a lot of people can't get access to even doctors. well, telemedicine is becoming a way that people are suddenly transforming their own healthcare. so in some ways, that era, is here. - no, it's beginning. i would say healthcare take, is an example. yes, in the first and second wave, there have been some innovations in healthcare, but the way most people in most cities, when they go to the doctor, go to the hospital, do, is about the same as it was. - yeah. - and so there is still a lot of room for innovation, in terms of figuring out better ways to help people, when they're trying to stay well, better ways to manage chronic disease, things like diabetes. - yeah. - better ways to manage life threatening diseases. and the anderson, here in texas, says when people come for second opinions, 25 percent of the time they reverse the first opinion. which shows you, - good. - there's not a precision, to that diagnosis,

- no, i'll feel very good about that actually. - well, it's a little concerning, and it shows you that there's still a need for more precision, in terms of understanding what the issues are, and then being able to figure out what the diagnosis, - so there, - so has there been progress? sure, there's been progress, but same in schools. most kids learn, and the way most teachers teach, is still about the same as it was, 10 or 20 years ago, but there are opportunities for more personalized, adaptive approaches to learning, which some schools are doing, most are not. in the third wave, it will become much more common. - so let's talk about healthcare, and then i want to go to education. i think those are both very good examples. is the technology revolution, you've talked about, this third wave, one in which, entities interact with us, and we with them, or is it more of a diy thing? is it where we're taking the entities essentially out of the equation, and we're taking control through technology of our own disruption and innovation? - a little bit of both. i think what's going to be unique in the third wave versus the second, is the role of partnerships, it's not just about the software, it's how do you connect, say with a hospital system, or the school system, - right. - and how do you help them figure out a way to kind of lean in to the future, and create better products and services

that are more convenient, better outcomes, lower costs, and things like that. so it's not just about the app, and that's what's really gonna define this. the partnerships are going to be very important. the other aspect, may be very important, is the role of policy in government and regulations. which people don't like to hear particularly, the entrepreneurs, because the government kind of slows them down, - right. - it can be cumbersome, and obviously there's some truth to that. but the reality is these are aspects of our lives that are pretty important, and the government is going to have some kind of regulations in them. and so the innovators need to understand, that of course the software matters, of course the team they have in their company matters, but the partnerships they form around the idea, also matter, and then having constructive engagement with government around the right way, to regulate drugs in the case of healthcare, or how we think about smart cities, and driver less cars, what is an appropriate role for government, an appropriate role for regulations. it's going to require a different mindset and that's ultimately why i decided to write the book. i realized some of the lessons of the first wave, will help people thinking about innovating in the third wave - inform the third wave. - exactly.

- but of course the incentive for us is clear, you know from our perspectives, as individuals as consumers, our lives may be improved, our access to services may be enhanced. is there as much of n incentive on the other end? if you're a big healthcare company, and you like the way things are going right now, more or less, and you're making big money off of the way that things are built right now, and you imagine this third wave universe, in which we're gong to streamline everything, for them there may be less profit. - there could be less profit, but if they don't lead into the future, and try to innovate, they probably will go out of business. - change is coming, - yeah, change is coming - you have to embrace it or not. - and the lesson i talk about in the book, is eastman kodak company. - right, you do talk about it. - when i, when i was a kid, kodak was one of the most iconic american companies, and if you thought of photgraphy, you thought of kodak. - yep. - they went bankrupt. - yep. - and the reason they went bankrupt, is they lost their way, they didn't invest enough in digital photography, but the really bizarre thing there, is their engineer at kodak, actually invented digital photography, but they didn't make it a focus, - if only. - they didn't, they did like the profits from selling the paper, and selling the chemicals, they were not eager to see that digital future. - the flip side of an eastman kodak, and an example of a company that has leaned in to your mind,

one that you can point to as an example, a shining star would be. - well some olderlying companies, like general electric, is reinventing himself around the industrial internet, ibm has also done some reinvention, and some younger companies, in the grand scheme of things, like google and apple, they really figured out ways to not just drive their core businesses, but figure out ways to enter new business, even though they now are pretty valuable companies, and have a lot of scale, with tens of thousands of employees, they've figured out a way to continue to innovate despite that scale. - education you brought up as another place ripe for the kind of disruption and innovation, sal khan, was here a couple of years ago, to talk about his khan academy, which of course is an online learning opportunity for people. it's, you know, started as youtube videos that he did for his family members and has now expanded into x number of countries. again that's a case where you're providing to people in their own homes, without the entities, - right. - providing it. this access to information and knowledge that they otherwise would not have had. but from a school standpoint,

where's the benefit to this? is it foreseeing them to think well now there's all of a sudden this competition offline from the way the traditional model is operated, is that what? - well i think what sal has done, a lot of other people have done, in terms of trying to take learning and make it more convenient, make it more - democratizing. - democratize it, put it in the cloud, as they say, is terrific. but most kids, are still going to learn in classrooms. and so how do you take some of the benefits that technology and help the teachers figure out better ways to teach. not all kids learn the same way. - true - some just need a little more time, some are a little more visual learners. so using tools to customize and personalize, and have a more adaptive approach. - and it's a combination of hardware and software. - and people. - right. - my idea, which i talk about in the book, of course i'm a big believer in the internet, of course i'm a big believer in technology. of course i'm a big believer in software. but it's also about people, it's also about taking that technology, and integrating it in institutions that matter. in terms of peoples lives, it's not just k 12, it's also universities, there some people believe all these campuses are going to go out of business, and they have no model. - absolutely preposterous - i actually believe,

absolutely preposterous, and so getting people who have that technology, innovation, mindset, to partner with the institutions, and say, "how can we help you move into the future?", "what problems can we help you solve?", "what opportunities can we help you seize?", so it's not just about the apps. it's not just about the software. it's about the relationships and the partnerships that are going to be so critical in this third wave. - well in two cases, at least that i can think of on both healthcare and education, there are arguments, that kind of come at people like you, who say that this is right for disruption. one is, that there's a socialization aspect, especially in education, to being in the classroom with other students, with other teachers. and the idea that we're going to take a significant portion of education out of the classroom, out of real time, and put it in the virtual universe, in some ways you're going to gain a lot, but you're also going to lose a lot. the interpersonal relationships that you would have in a traditional classroom mode, what about that? - i agree with that, and i think again the possibilities of learning through apps, like, or services like a khan academy, are terrific, the fact that people all around the world

have access to that, they didn't before, is terrific. but that's not to say, that's the way everybody should learn. there is a role for teachers, there is a role for classrooms, there is a role for the discussions you have. but some of the initial trials of what they call, moc's, the massively online courses. many of them fail, because people signed up for them, but didn't really complete them. because it wasn't just about the content, what you're trying to learn, it also was the context and the community. and having a community of learners is very important, for having more interaction. - so it could be, it could be both end, right? - and you may even see the idea of a flipped classroom, where maybe instead of going to class, and taking notes as the professor is giving the same lectures, he or she has given potentially for decades. you watch that lecture in your dorm room, the night before, and you come to class ready to talk about it. with the professor, with smaller groups, that interact with learning, leveraging what's so great about the classroom environments, important using technology to infuse some new possibilities, i think is also important. but that's, i think, gonna be the key message of this third wave. it's about going beyond the software,

going beyond the technology, and having it improve important aspects of our lives, which only can happen if the innovators are partnering with the institutions in place, and having a dialogue with government, because they're gonna be regulating many of these sectors. - well, what about privacy concerns? you know, we live in a paranoid country at the moment. anytime somebody is connected to an entity digitally, the people, some people, on the receiving end of that, go well this is just about the government taking my guns, or this is about the government somehow finding out they're going to put a chip in my head, i mean that paranoia has gotten a little bit off the edge, but at the same time you understand that you're pushing up against sectors of our country, in which, whether it's access to electronic health records, or somehow conducting education electronically, people go what's really going on here, and am i somehow made more at risk? there were hippa issues, - right. - there were ferpa issues, what do you say about that? - that's true. these innovations as they accelerate in the third wave, are going to create new kind of challenges. there are things that we can do, that we couldn't do before, which are going to be great, but there are also going to be some challenges.

which is why policy is going to matter, and i understand the reluctance. - you think it's a legitimate concern? - oh absolutely it's a legitimate concern. all these issues are a legitamate concern. but in taking encryption for example, which you've gotten a lot of - you've mentioned government policy, - when you were interviewing president obama, at south by, - yes. - that was a big focus of it. it's a tricky issue, and in that particular instance, it was the government saying we need access to that phone, for national security kind of reasons and the company in this case, apple, was saying, no we don't want to give you that. - and anxiety over privacy, - insubordinate - and so society over privacy. - they say the anxiety over privacy is actually a greater national security interest, weirdly, or national interest than giving you access to that. - but the key is going to be balanced, and you mentioned hippa in healthcare. that yes, of course people want more personalized approaches to medicine. where they ask, a doctor actually knows what the problem is, and can have a much more targeted solution. that requires data, which requires things like electronic medical records, but at the same time, people want to make sure that their privacy is protected. - protected. in the area of smart cities and sensors to manage traffic, or driver less cars,

that a number of companies are working on. people say, "well that's an interesting innovation, "maybe that's be good for me", - right. - but how do we make sure in our cities, that somebody can't hack into these cars, and create a huge kind of disturbance. so there going to actually ask the government, in those instances, to make sure those innovations are allowed to go forward in society in a way that protects people. - to provide a layer of security, or - a layer of security and encryption, so in some cases, the government really forcing the innovators, to have more encryption in other cases, is the innovators pushing back saying, the point is it's complicated. and it's going to get more complicated as the internet goes from being something we connect to on our pc's, to software apps we're running on our phone, to being integrated in much more seamless ways throughout different aspects of our lives, changing in fundamental ways, how we learn, how we stay healthy, how we move around, how we invest our money, even what and how we eat. there's some big aspects that are up for grabs in this third wave, and it's not gonna happen unless we have a contsructive dialogue between the innovators and the policy makers.

- well you mentioned on the policy makers front, you mentioned the apple encryption case, now it becase a mute point. because the government paid like a gazillion dollars to get the phone hacked, or whatever it was, i mean it all got resolved, but there was a fundamental foundational issue at the center of that argument between apple and the federal government, whose side were you on? - i didn't have enough data to have a side. i think part of the problem with this, is people just kind of think about these in vague talking points. - black and white. - i lean towards the technologists side, of protecting the privacy, but i'm sympathetic, as the president said, to the needs of making sure people are able to, that the governments able to protect people. and particularly from risk around terrorism, and so i, it's going to have to have a discussion. - yeah. it's going to have to have some kind of dialogue. - do you think the policy apparatus of this country, whether it's official washington, or just generally speaking, people who live in this policy arena, understand the technology sector well enough to work with technology, - no. - and technologists? - i think both sides are, have some flaws. - okay so explain. - on the government side, i think they do not understand, the nature of technology. obviously the exception, but in general,

they don't understand the paces, they don't understand what's happening, they don't understand how it's going to transform society, how it's going to create, you know, some interesting dynamics, in terms of our economy, some of the challenges that will emerge from that. and they don't have enough of a discussion, with the innovators, so there tend to be kind of backward looking, not forward looking. - what's it going to take, - somebody on the innovator side, they're generally focusing on their thing, and not really thinking about the broader kind of social context they're operating in. so both need to kind of play a new game in the third wave, that's really why i wrote the book. i think what the playbook for the second wave when it was about apps and software, is not going to work, - it's a different playbook. and that's true for the innovators with the small startups, or a large corporate fortune 500 company, and that's true for the government. the government, i have a chapter about the disruption of the government, in it itself. it needs to reboot, it needs to rethink the ways to govern in a rapidly changing complex world. - does it change from the bottom up, or does it change from the top down? we're in a presidential election, and of course i'm thinking about how often within big entities, the change only comes when there's an overturning of the mulch.

- right. - right, when you have new leadership, often generationally different, were looking at the prospect of the election here, between two people who are in their upper sixties. i'm not sure that either donald trump, or hilary clinton, if they're the nominees, are particularly, tech forward people. so are we going to have to wait for a new generation of leadership in washington, to inspire people in government, to think carefully? - i hope not. i don't know who's going to win, and i kind of stay out of the politics kind of world, so i can be kind of, yeah i just want to be a behind the scenes, bridge builder, and try in a non partisan way to get whoever is the president, whoever is controlling congress, - but regardless, we're not, - sure. - we're not, this is not going to be tim cook as the president of the united states. we're going to, - well it's never over 'til it's over, but that looks like, - or zuckerberg. - probably, probably. - contest the convention. - cook, zuckerberg, 2016. - probably. there you go, you can start some rumors here. - but you get my point - but the point, irrespective of who wins, we do not have four years, or eight years to wait. we have to figure out a way to have more of this discussion. we have to figure out way to lead in the future, as a country, because the worlds getting more competitive. this issue of entrepreneurship has helped build america,

and remind people, particularly in d.c., that 250 years ago, america itself was a startup. it was just an idea. and we've kind of lead the way in some of these different revolutions agriculture, industrial, - yeah, yeah. - and technology, and now were leaders of the free world, because we have the leading economy. but other countries have figured that out, that there's sort of this secret sauce that's made the american story so great, is innovation, and entrepreneurship, this pioneering spirit. so they're making investments of basic research, they're changing their immigration policies, to track more talent, they're figuring out the right investment incentive to track, you know, capital. they're taking out the right regulatory environments for this third wave. so we've saw in the last 50 years, the globalization of manufacturing, the globalization of capital, now we're seeing the globalization of entrepreneurship. - you talk about the future. another thing that's enevitable about the future, all over this country, is changing demography. you mentioned my opportunity to sit with the president, one of the things we talked about is the fact if you're going to have a digital age, and you're gonna put the burdens of changing the public's attitudes about these big issues, and getting people more engaged

from the civic participation standpoint. if you're going to have a digital age, everybody has to be in the digital age. - right. - one of the things we know, mr. case, is that whether it's the internet of things, or the internet of everything, a lot of nonwhite people, and a lot of poor people, in this country, don't have access to the same tools, and the same devices as the rest of us do. - correct. - how do we change that in order to enable the thing you're talking about. - it's very important, even in that first wave, we had a big initiative at aol, of trying to bridge the digital divide. we were actually quite concerned, as people had access to pc's, got connected to the internet, but not everybody could get access, or get connected. does that exacerbate or divide the already existence. we built a thousand technology centers, to try to bridge that. that will be again a problem in the third wave, but it's also an opportunity. because in the second wave, as you elude to, that most of the innovation came from a few places and a particularly unique type of person which is basically like white guys, who went to good schools. now in the third wave, there's an opportunity for much more inclusiveness, much more diversity of entrepreneurship, and the people closest to these ideas, closest to the problems,

are likely to be coming up with a better solution. so things like what congress did pass, actually a few years ago, with the support of the president, called the jumpstarting our business startups act, the jobs act, will legalize crowd funding, which is a game changer, - yeah. - in terms of giving every entrepreneurs idea the ability to get the initial capital, to get started or to scale up. right now it's not fair, people, mark zuckerberg happened to be at harvard, when he came up with the idea of facebook, and he happened to have a rich friend, across the hall, and so he could take that idea, and run with it. - right. - but most people, - don't have that opportunity. - don't go to harvard, and most people don't have a rich friend, i think. in the third wave we need to make sure we have a bias towards an inclusiveness, so everybody has opportunity. - who's responsibility is it to solve that problem? is it government, is it business? i mean you can argue that the technology sector, innovators themselves, who have products to peddle, who have devices to sell, would do well to seed their own customer base on the front end, by enabling this access. i mean it would be nice if government put a bunch of initiatives in place, but again people become suspicious, - sure. - every time government does

that, so maybe it's on people like you. - it's a mix, it's a mix, and i think some companies, like a facebook, no initiative to try to provide access to people who don't have internet access all around the world. google's made a big investment, in what they call google for entrepreneurs, trying to help inspire the next generation of entrepreneurs, with a bias towards more inclusiveness, more diversity, so some folks are doing it, but not enough. i think that in this third wave, the innovators, the leaders, of these companies, really need to recognize, it's not just about their company, and maximizing profits, it's about the country, or the society, more broadly, also maximizing purpose. - we have just a couple of minutes left, and so i'm gonna ask you to talk about an easy subject, why aol has gone the way that it did over the years, you started this amazing company, it was a pioneering company, got out, and over time, aol's place at the table, has been reduced and diminished. - sure. - did you imagine that that would happen, or has it happened in a way that surprised you? what's your, - no, it didn't.

- back of the envelope on what's happened to aol over the years? - i didn't imagine, it's been a surprise, and a disappointment. at the peak of aol, around 2000, about half of all internet track went through aol, - yes. - and was the dominant internet company. now it's still around, it still has lots of people using lots of services, but doesn't obviously have that same, - market share. - the main reason for that, is as we got bigger, we shifted from being an attacker, to being a defender. instead of trying to seize opportunity, we're kind of protecting the downside. - always easier to play offense, isn't it? - and that was a little bit true before we merged with time warner, certainly true after, and one of the lessons i have a chapter in the book about, one of the lessons, is that having vision without execution, is hallucinations. a thomas edison quote, from a century ago. the vision of that merger was powerful. then and now, the execution of that was terrible, and it was mostly about people, and trust, and cultures. so the people aspect, that was they key lesson, i took on it. - would you go back and undo it if you could? - i wouldn't because it's still the right thing from an aol standpoint, when i was ceo, both from a financial, diversification, standpoint, and having a path to broadband.

but i think some of the lessons we learned, both in that early stage of building aol, and then, you know, the merger and post merger, are things i've tried to share through the book. - yeah, and the post case era at aol, what's the one thing that you think they should have done different? second guessed them just on one thing, if you could? in order to be more relevant today, - well i'd say two things, one is with time warner, part of the reason to merge is the diversity of businesses there. they own time warner cable, and warner music, and time inc., - all those magazines, right? and turner, and cnn, and so forth, and digital music, for example, should have been led by that company. they owned aol, they owned warner music, owned time warner cable, not led by apple, that was launched later. so it was missed opportunity by not working together, as one company. - yep. - and then second with aol, it was all first and foremost about community. we used to say that the killer app of the internet, is people. and some of that focus on people, has been lost over the last decade. they shipped it to more of a focus on content, versus the focus on community. so the two lessons are with a combined company, even though it's hard when you have that scale, play offense, lead into the future, hopefully this book will be helpful

for bug companies trying to think about the future, - yep. - instead of ignoring the future, or just hoping the future won't happen, they embrace it and figure out a way to partner with the entrepreneurs, and the other is recognizing that the core of the internet, is and i think always will be, around people. - right. do you make bets these days an an investor? you look at people and you go, i know who's doing it right. what's going to be the next aol? do you see a company now, just getting started, that you think, they have the bones, they have the leadership, they have the vision and execution, where maybe in 10 or 15 years, we're gonna talk about them, as a transformational entity, in the way that they used. - absolutely. i have an investment company revolution, we have both a venture capital group and a growth stage group, so we'll make six or eight investments a year, - give us one you like - in these, in these third world, actually one of the ones that's most interesting, and surprises people is what's happening in the food industry. five trillion dollar industry, - yep. - hundred percent market, you know, everybody eats, everybody eats multiple times a day, but most of the big food players, are basically used to kind of processed, industrial, approaches to food. there's a whole generation of brands are emerging. we've invested in one called sweetgreen, for example,

it's a fast casual restaurant, that's eating away at the fast food giants, like mcdonald's and now expanding around the country, i think it's a terrific company. it does use technology, both to manage the farm to table system with farmers, and also about 25 percent of the people actually order their meal on their phone, when their on their way there. but at the core it's about how do you revolutionize food and provide people with healthier options. so were trying to invest in these third wave entrepreneurs leading in the future, and we're particularly focused on these rise of the rest regions, we don't invest in silicon valley and new york, because everybody else is. - in the rest of the country. - we'd rather invest in the middle of the country, because that's where we think there's enormous opportunity in this third wave. - i love how you're walking the walk, that you're talking the talk, - absolutely. - all kind of in one, that's good. mr. case, thank you very much for being here, good to see you, - thank you, pleasure. - congratulations on the book, steve case, thank you very much. (audience applauding) - [voiceover] we'd love to have you join us in the studio. visit our website at klru.org/overheard to find invitations to interviews, q & a's with our audience and guests, and an archive of past episodes.

- when the first wave, it really was, as they said, just about building it, and getting everybody connected, which of course, now we all take for granted, but it took us a decade, to convince most people, you know, to get online. it's own dynamics. this app economy, around the second wave, has obviously been you know a big deal in the last 15 years, and the trends in the third wave are just building. what happens after? really hard to say, but there's a lot of work that technology and really improve peoples lives in fundamental ways, - [voiceover] funding for overheard with evan smith, is provided in part by, mfi foundation, improving the quality of life within our community. also by hillco partners, a texas government affairs consultancy. and by the alice kleberg reynolds foundation. (calming music)