The coming innovation revolution: the new “Roaring 20s”
“Today water is used universally and no one would think of charging a friend or even a stranger for a drink. The same will be true of electricity. When the friend calls with his electric vehicle, it will be driven into your cellar and the battery will be recharged while he is making his call.”
Charles Steinmitz, a prolific inventor and mathmatician, made this prediction in 1921 in a newspaper article predicting the world of 2021.
Despite the destruction of a world war, followed by nearly two years of a global pandemic, the 1920s saw an unparalleled flourishing of innovation. In less than 10 years entire new industries were born: automobiles, telephony, film, radio, and electric appliances. We are about to witness a similar boom in a post-COVID world, in the 2020s.
Multiple technology disruptions are happening at the same time
The past few decades have shown us the impact of technology disruption on our day-to-day lives. The 1990s “connected everyone” via the Internet. The 2000s brought universal access to information and data via the web browser. The 2010s brought all this together in the palm of your hand via a mobile device. Today, multiple technology revolutions are working together to transform many new markets at once.
Artificial intelligence, DNA sequencing and editing (via CRISPR), 3D printing using more & more varied materials at ever larger scale, digital twins (predictive simulations), cloud, faster and more pervasive communications, and cybersecurity are just a few of the technology megatrends that are being applied to energy, food, water, transportation, work, and life.
As an example, consider the changes in the energy industry over the past decade. In 2009, the price of solar energy (the most expensive) was 4.5x that of natural gas (the least expensive). By 2017, solar energy costs had dropped by 86% and along with wind power, it is now the cheapest form of energy available. In fact, a recent analysis by RethinkX, a research organization, shows that the cost of gas and coal may have been underestimated by a factor of 1.6x and 4x for years.
These disruptions will destroy many existing companies and create many new ones. The VanEck Vectors Coal exchange-traded fund (a collection of shares in leading coal companies) lost 96% of its value from 2011 to 2020. Most of these technology disruptions are enabled by digital innovations. As John Chambers, former CEO of Cisco Systems says: “every company is becoming a digital company.”
The rapidly improving performance in solar panels, genome sequencing, connectivity, and computing power is called the “learning curve.” The learnings are derived from a virtuous cycle of: initial adopters willing to buy technology at a premium, scaling up of production facilities to lower unit fixed costs (and increase purchasing power), additional R&D that results in improvements in material science or algorithms, all of which lower prices resulting in more customers which drives the cycle anew. In addition, business model innovations (leasing solar panels) and government incentives (tax rebates for electric vehicles) or regulations (carbon taxes) can help drive the adoption of these innovations even faster.
In the coming decade, we’ll see a number of disruptions create “cross-over” points, where a new approach will outperform an established traditional alternative. These changes can occur very quickly. As Tony Seba points out using two photographs of a street in downtown New York: the first, taken in 1900 shows only horses and horse-drawn carriages. The second shows all of the horses replaced by cars. The two photographs were taken just 13 years apart. When the cross-over tipping point is reached, the value of the old way falls rapidly and the new way becomes incredibly valuable. While Yogi Berra warned that “it’s tough to make predictions, especially about the future,” it’s possible to try and estimate the learning curve of a particular technology by studying the evolution of various inputs: scaling, R&D, business models, and favorable government policies) by following their “rate of change”. This can be expressed as a simple disruption model:
The key to understanding the upcoming threats and opportunities in the coming decade is to examine various industries affected by technology disruption and to identify any rapid changes in the various inputs that are driving the learning curve. Tesla’s Gigafactory in Nevada is an example of a quantum leap in the scaling of battery manufacture. The boom in residential solar was driven not only by cost improvements via large-scale production facilities in China, but also by financing models (which enabled customers to replace their electricity bill with a cheaper monthly payment on their solar panels). Solar was also helped tremendously by German government’s policy of energiewende (energy transition) that contributed significant tax breaks for the adoption of renewable energy.
What will the upcoming Roaring 2020s bring? The COVID pandemic has accelerated trends already underway. By one estimate, e-commerce adoption has been accelerated by 5 years. Crises like pandemics and wars create changes in social structures that can also drive innovation. “Rosie the riveter” was an iconic poster of a female factory worker exhorting women to join the workforce during World War II. Today, social distancing and confinement at home are boosting productivity (and unfortunately, also stress) among white collar workers. Patients with non-urgent care issues who previously would travel to clinics for treatment have adopted telemedicine with gusto, driving uptake by 3,000 percent in just a few months.
In addition to the technology innovations and changing cultural conventions mentioned previously, this global pandemic has also created new pools of capital (money and people). For some, this has come as a result of business shutdowns and layoffs (we still have record levels of un- and under-employment). For the more fortunate ones who have been able to continue working from home, they have curtailed their travel (for business and pleasure), dining out, and other discretionary expenditure during lockdowns, saving $200B/month. After nearly a year of lockdowns, this stockpile now amounts to over $1.6T that can flow to investments and discretionary spending once lockdowns ease. This “pandemic peace-dividend” will create huge demand for certain industries.
What will be the impact of these rapidly changing technologies, cultural norms, and capital flows in the coming decade? In the following series of articles, I’ll explore some of the more important markets that the 2020s will be disrupting and innovating in. I’ll post a new article each week. Stay tuned:
- Programmable Biology: hacking the genome
- Green gold: renewable energy and electrification of transportation
- Efficiency: waste not, want not
- The Age of AI: the impact of Artificial Intelligence
- New wireless connectivity: it’s not just 5G
- Space: the not-so final frontier
- Future of work: Post-pandemic: the changing nature of work
- Telemedicine: the doctor will FaceTime you now
- Refactoring enterprise applications: borrow, don’t build
- Carpe diem: experience it all, now
- Cybersecurity: protecting our digital lives
