Convergence - abbotdowning.com · Convergence: Transformative ... In one of the most striking...
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iConvergence: Transformative technologies in the early 21st century
In this white paper:
Introduction 1
Core Technology Advancement
• Modern Computers — Smaller, More Powerful,
Faster, Cheaper 2
• Data Storage and Big Data 2
• The Internet, Broadband, and Sensors 4
• Phones Get Smart and Go Mobile 4
• Enhanced “Manufacturing” via Robotics, Machine
Visioning (GPS and Sensor) and Advanced Materials 6
• 3D Printing 7
• Advances in Biological Sciences 8
• Social Media and Collaborative Technology 8
Investment Implications 9
Potential Roadblocks and Bottlenecks 11
Conclusion 12
Written by:
Carol M. Schleif, CFA
Regional Chief Investment
Officer, Asset Management
Nicholas S. Gergen, CFA
Analyst, Asset Management
Katie Johnson
Analyst, Asset Management
Reviewed by:
Douglas W. Evans, CFA, CIMA
Senior Managing Director,
Asset Management
Britt T. Whitfield, CFA
Regional Chief Investment
Officer, Asset Management
TA B L E O F CO N T E N T S
1 Convergence: Transformative technologies in the early 21st century
CO N V E R G E N C E : Transformative technologies in the early 21st century
Throughout modern history, periods of intense innovation and technological advance have been followed by a relatively
radical step up in the human condition as new industries, processes, routines and services become commonplace
(Chart 1). In the mid- to late-1800s, for example, the United States became truly united with the completion of the
transcontinental railroad and a series of interconnected waterways. Moreover, the development of electricity, indoor
plumbing, steam and mechanical engines, telegraphy, photography and modern medicines spawned greater operating
efficiencies in a broad swath of industries and rapidly accelerated the pace of life for Americans.
A variety of individual technologies — among them
computer processing, software, robotics, genetic science,
biotechnology, quantum physics, materials, and telephony
— have emerged in recent decades. While most of the
technologies themselves are no longer new, recent
advances and, more importantly, opportunities for overlap
and convergence have brought us to the precipice of a
new era. In much the same way that individual tributaries
come together to form a mighty, rushing river, we expect
this convergence to have the potential to change the
downstream landscape and drive the entire world to a new
and higher plane of existence. Deployed correctly, these
technologies could transform nations and move billions of
people into the global middle class.
This Paper
• Reviews the development and current state of some of the
most important enabling technologies
• Outlines potential uses and interplay within key industries
• Suggests potential investment opportunities
• Highlights potential roadblocks and pitfalls to application
and deployment
Given the vast number of variables and the rapid pace
of change in technology, this paper does not claim to
serve as the final chapter in exploring the existing
technological landscape. Rather, it is meant to encourage
and facilitate ongoing discussion of potential economic and
investment opportunities.
“con·ver·gence” – noun [kuh n-vur-juh n(t)s] the merging of distinct technologies, industries, or devices into a unified whole1
2Convergence: Transformative technologies in the early 21st century
Section I: Core Technology Advancement
Modern Computers — Smaller, More Powerful,
Faster, Cheaper
While computers themselves have technically been around
for centuries (the first mechanical accounting device dates
back to the 1600s), their applicability and ubiquity have
been driven by vast declines in price, reductions in size and
improvements in processing power. Today’s $400 iPhone,
for example, contains the same processing power that a
$5 million supercomputer did in 1975.2 Perhaps more
striking is that the Voyager 1, developed by NASA in
the 1970s, has traveled 11.6 billion miles to interstellar
space on less than 40KB of memory; a 16GB iPhone 5
has about 240,000 times more memory than this
spacecraft. Voyager’s computers can process about
8,000 instructions per second while smartphones can
handle over 14 billion each second.3
Data Storage and Big Data
An additional factor in the expanding use of computers
is the marked decline in the cost to store information
(Chart 2). Computers obviously require access to vast and
ever-growing pools of raw data that continue to increase
Chart 1: GDP Growth Relative to Key Technological Advances
Technology in Industry
Technologically induced changes in employment
are not new. In 1900, 44 percent of the U.S.
population was involved in agricultural-related
endeavors. Today, the number is two percent,
meaning that over 40 percent of the populace
has transitioned into other activities. Dozens,
if not hundreds, of today’s jobs did not exist
20 years ago. Change and creative destruction
are part and parcel of a free market society,
as painful as that can be for individuals or
industries caught between the gears of
so-called progress.
Source: The World Bank and Abbot Downing
3 Convergence: Transformative technologies in the early 21st century
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$450,000
$500,000
1980 1985 1990 1995 2000 2005 2010 2013
Average Cost/GB
in complexity. The storage needed just to generate 3D
images is enormous. Now that data is relatively cheap
and ubiquitous, people can, for example, tap into Google
to answer all sorts of questions. The search engine was
launched in 1998 and now responds to nearly six billion
inquiries a day on average.
Access to cheap data has changed industries in more ways
than many of us remember — and in very short order. In
the early 1980s, when a Wall Street analyst conducted
comparative balance sheet analysis, the process started
with a call to each company in a given industry. Analysts
requested multiple prior years’ regulatory filings and then
produced hand-written calculations on green accounting
paper. Now such a request can happen with a few computer
strokes using software often available for free from a variety
of financial news sources. The era of Big Data is here and
we have only just begun to figure out how to exploit the
implications. A wealth of new businesses, careers and
job titles — including data scientist — have emerged as
companies explore ways to use the exponential increase in
information they generate.
In one of the most striking recent examples of the use of
Big Data, IBM’s Watson computer beat two of the TV show
Jeopardy’s human all-stars at a nuanced game in part
because the computer prepped for the contest by reading
Wikipedia in its entirety!4
The amount of data currently collected doubles every
1.2 years;5 in fact, IBM estimates that 90 percent of the
world’s data has been generated in the past two years.6
Increasingly, it is not being stored or processed “locally”
by individuals or companies, but rather is amassed in
“the cloud.” This is akin to energy use that is created and
transmitted by power companies across a grid rather than
by individual homes or businesses. According to McKinsey
& Company, renting a cloud-based server costs one-third
as much as maintaining one’s own.7 Amazon Web Services
already processes the vast majority of small- and mid-sized
business server needs, saving them tens of thousands of
dollars in hardware costs.8
This fact has not gone unnoticed by the likes of Google,
Microsoft and others who are rapidly trying to expand
their own cloud services. These services also mean that a
Chart 2: Average Cost of Computer Storage
Source: Average Cost of Hard Drive Storage – Statistic Brain. 2013 Statistic Brain Research Institute, publishing as Statistic Brain. 6/18/2013 http://www.statisticbrain.com/average-cost-of-hard-drive-storage
4Convergence: Transformative technologies in the early 21st century
personal credit card and a good idea can launch a business
in a day or two.
The Internet, Broadband, and Sensors
There are currently 2.5 billion Internet users worldwide,
estimated to increase by an additional 2.5 billion by
2025 (Chart 3).9 Many of these new users will come from
emerging market countries facilitated by a build-out of
broadband services. Aside from human connections,
there are currently nine billion “things” connected to the
Internet, a number projected to grow as high as one trillion
in the next decade. The potential additive to global GDP is
estimated to be $3.7 – $10 trillion dollars.10
Many of these “things” are sensors embedded in or applied
to an ever-widening list of items. Those same “smaller,
faster, cheaper” trends that have impacted computers,
as well as the increasing ubiquity of broadband access,
are driving the use of these devices. GE embeds smart
sensors in certain airline engines, for example, that can
self-diagnose issues in flight and advise repair crews on
the ground to have specific parts available upon landing.
Sensors can be part of infrastructure such as bridges
and roadways transmitting real-time data to city repair
crews. The barcode stickers that airlines attach to checked
luggage are tracked by sensors that allow phone apps
to locate lost bags. Finally, sensors can be used in self-
diagnosing appliances, speed-adaptive cruise control in
cars, light switches that sense movement, bar codes on
individual parts within factories, pills that can be swallowed
to facilitate internal diagnosis, and for seeding clouds for
gathering weather data. The list goes on and on.
Phones Get Smart and Go Mobile
In 1950, 40 percent of U.S. homes did not have a phone.
According to PEW Research, as of January 2014, 90
percent of American adults have a cell phone and 58
percent, a smartphone.11 Chart 4 illustrates that as recently
as 2000, there was only one phone for every three humans
on the planet, half of which were mobile. As of 2012, the
number of phones in use exceeded the world’s population,
two-thirds being mobile. Chart 5 shows the geometric rise
in mobile subscriptions over a longer time frame. As noted
by Cisco Systems, Inc., mobile data traffic in 2013 was 18
times larger than all Internet traffic in 2000.12 Again, smaller,
Chart 3: Global Internet Use
Source: Internet Live Stats and Abbot Downing
5 Convergence: Transformative technologies in the early 21st century
faster and cheaper trends have helped shift computation
and Internet access from a static activity to a mobile
one and increasingly a “smarter” one with the advance
of functionality that these devices offer. What was once
merely a single communication device is now multiple
devices merged into a single handheld phone that can
also serve as a radio, TV, camera, calendar, Rolodex, car
keys, level, child tracker, photo repository, map, GPS, book,
newspaper and even a “lighter” to raise at a concert, to
name but a few.
Interconnectedness and the rapid distribution of ideas and
information have been transformative influences around the
globe, as evidenced by such events as the “Arab Spring” —
the demonstrations, protests and riots witnessed in recent
years in the Arab world. Emerging markets, lacking the
outdated infrastructure existent in developed markets, have
the potential and ability to leap-frog developed countries
with rapid adoption and deployment of mobile technology. In
much the same way that the printing press altered the status
Chart 4: Worldwide Total and Cell Phone Use
A–Z
Source: International Telecommunications Union: ICT Statistics and Abbot Downing
6Convergence: Transformative technologies in the early 21st century
almost “superhuman” qualities of strength, lightness and
even “self-healing.” Carbon nanotubes, for example, are 115
times stronger than steel.14
• The latest airplane designs from Boeing and Airbus
rely on lightweight carbon fiber composites rather than
aluminum or steel. According to a report by the British
Broadcasting Corporation, what were previously hundreds
of components can now be woven into single parts that
are stronger and lighter, thereby cutting manufacturing
and repair times as well as fuel costs. An Airbus executive
noted that for each kilogram reduction in weight, roughly
$1 million is saved in fuel costs over the lifetime of an
airplane. All told, carbon fiber composites reduce an
aircraft’s weight by 20 percent.15
• The U.S. Government’s Defense Advanced Research
Projects Agency (DARPA) initiated a contest in 2004
that was credited with kick-starting the driverless vehicle
industry. It offered $1 million to any team that could
produce a driverless car and navigate it over a specified
course. In the first year, no team succeeded; the next year,
several did. Google’s driverless cars have already logged
500,000 miles on congested California highways with
Chart 5: Mobile Cell Phone Subscriptions
quo of the Middle Ages as it ushered in the Reformation,
increasingly broad access to information and ideas via mobile
technology is disrupting hierarchies around the globe.
For every mobile phone in use in the U.S., there are nearly
four in China and three in India.13 Perhaps that is not a
surprise, given the relative populations. All in all, there are
97 mobile phones in use for every 100 people on the planet,
although the per capita count in countries varies widely.
Enhanced “Manufacturing” via Robotics, Machine
Visioning (GPS and Sensor) and Advanced Materials
Murmurings in the popular and financial press suggesting
a manufacturing renaissance in the U.S. are not without
foundation. Significant advances in the sophistication of
robots, additive manufacturing (3D printing), Big Data- and
sensor-assisted logistics and supply management, and the
use of newly created nanoparticles are all playing a part.
Consider these examples:
• One-gram nanotubes are core components in new
materials manufacturing; their price has dropped from
$1,000 to $50 over the past 10 years. Common particles
that can be manufactured in nano sizes take on unique
-
1,000,000,000
2,000,000,000
3,000,000,000
4,000,000,000
5,000,000,000
6,000,000,000
7,000,000,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Mobile-‐Cellular Subscrip1ons
Source: International Telecommunications Union: ICT Statistics
7 Convergence: Transformative technologies in the early 21st century
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2005 2006 2007 2008 2009 2010 2011 2012 2013
All Internet Users
Ages 18-29
Ages 30-49
Ages 50-64
Ages 65+
only one human-induced accident. California and
Arizona legislators are working on laws to regulate
these new vehicles.16
• DARPA kicked off a similar contest for robotics in
December 2013. Several teams won and shared $80
million in additional funding to return at the end of 2014
to perform even more rigorous tests.
• An Associated Press report in an April 9, 2013 USA
Today article noted that nearly 400,000 surgeries
were performed in 2012 by a robotic device called the
Da Vinci, produced by Intuitive Surgical, Inc.
3D Printing
Additive manufacturing, or what is commonly termed “3D
printing,” actually comprises five different technologies.
The basic concept consists of an ability to model an item
in three dimensions and then “print” a fully functioning
copy by spraying or molding materials, one minute layer
at a time. Public fascination has focused on items like
jewelry, tools, etc., particularly since the price of printers
has declined and access has increased via stop-in stores
like MakerBot. Even selected UPS stores have 3D printing
capabilities. A key component for the consumer market
is the availability of patterns and there are an increasing
number of websites that provide free or low-cost designs.
Some pundits believe that sooner, rather than later, people
will be able to upload their personal measurements and
order custom-made clothing and shoes.
More serious applications include the ability to speed the
delivery of new parts or new models to market and test them
in a less impactful way. Furthermore, the use of 3D will allow
surgeons and others to model, say, a human heart with all of
its intricate parts, or virtually any part of the anatomy.
Additive manufacturing has actually been around for
decades, but several key patents have expired in recent
years, expanding reach and interest. Moreover, cheaper
computational power, faster access speeds and advances
in materials have all aided in increasing the visibility and
viability of this technology. Also, important patents expired
in the summer of 2014 which should further accelerate
innovation and adoption.
Chart 6: Social Media Use
Source: Pew Research Internet Project
8Convergence: Transformative technologies in the early 21st century
Advances in Biological Sciences
The pace of change in the medical sector is nothing short
of stunning, with the most notable advances in genomics
and synthetic biotechnology. Additive manufacturing is also
enabling large strides to be made in researching a variety of
compounds such as stem cells and synthetic DNA.
As pointed out in a recent McKinsey report, it cost $2.7 billion
and took 13 years to complete the process that first
mapped the human genome. It is now widely expected
that within the next decade, patients will be able to have
their personal genome mapped in a doctor’s office in less
than an hour for $100. All told, the rate of improvement in
gene sequencing has actually exceeded Moore’s Law, which
states that the number of transistors on integrated circuits
doubles every two years.17
The rapid development of 3D printing technology has
important implications in the health care arena, too. The
benefits of being able to image a complete heart, including
internal valves and chambers, or a custom-fit joint are vast, to
put it mildly. In early 2013, researchers at Princeton created
the first 3D-printed fully functioning ear — using a modified
$1,000 laser printer.18 The technology entails building a
scaffold out of sugar and water that is then sprayed or
“printed” with stem cells or other organic components that
can develop their own blood vessels. The scaffold is designed
to dissolve naturally. The current expectation is that there will
be an entire human liver 3D-printed this year. The implications
of these advances for those languishing on organ donation
lists are almost unfathomable.
Much research is afoot in nanotechnology in the health care
field as well, with 80 nanotechnology-based drugs in the
pipeline, including 43 for cancer treatment. An additional
seven are in Phase 3 clinical trials according to a recent
article in Foreign Affairs magazine.19
Social Media and Collaborative Technology
According to the PEW Research Center, in 2006, 49 percent
of 18 – 29 year olds used social media sites, while just four
percent of 50 – 64 year olds did. By 2013, those figures stood
at 90 percent and 65 percent, respectively (Chart 6).20
While it is tempting to think of social media as a fad, it
is becoming an increasingly powerful, ubiquitous and
incontrovertible tool. Notably, 82 million millennials
technically outnumber the 77 million baby boomers.
Anyone under the age of 35 has been raised in a petri dish
of innovation with access to a broad variety of technologies
and collaborative processes. One of the hallmarks of their
school years has been project work versus the worksheet
and textbook methods of prior generations. Social
networking is not just a nicety or fun pastime; rather it
Technology in Industry: Health Care
In the opening ceremonies of the 2014 World
Cup in Sao Paulo, Brazil, a paraplegic wearing
a mind-controlled exoskeleton launched the
first kick.21 This is just one small example of the
many exciting things already coming to fruition
in the health care industry. Robots are routinely
conducting surgeries like hysterectomies
and prostatectomies. Big Data is being used
to streamline and coordinate recordkeeping
between radiology departments, operating rooms,
pharmacies and doctor offices as a means to
enhance efficacy. 3D products can conceivably
print functional body parts such as ears and
breast tissue, with the prospect of custom joint
and organ production not that far off. Seemingly
on a near-daily basis, important breakthroughs
in the ability to isolate problem portions of
individual DNA strands are occurring, with the
hope of repairing, rectifying or removing them.
Citizens in rural regions have better access to
high tech care, given remote medicine practices.
Perhaps one of the most exciting long-term
opportunities within the health care sector lies
in chronic disease management, responsible for
over half of U.S. health care costs. The ability to
sensor and monitor remotely such conditions
could dramatically improve health care costs
and allow individuals to enjoy an independent
lifestyle. Devices like Fitbit or Jawbone
facilitate daily monitoring of exercise and sleep.
Theoretically, sensors could also be added to each
prescription and pill bottle to reduce fraud, waste
and misdiagnosis. Additionally, tiny internal
sensors can be “installed” to monitor disease
progress or the efficacy of drugs.
9 Convergence: Transformative technologies in the early 21st century
is how the younger set thinks, works and interacts with
the world. Their brains’ neural connections have been
stimulated differently from infancy.
The importance of social media to consumer companies
is an increasingly “big deal” as well, with many old-line
companies regularly trolling social media websites like
Facebook, Twitter, and Instagram to pick up clues for
product issues or changes in customer perception. For
example, Target’s 2013 data breach was first revealed by a
security blogger, not the company itself. And, in another
case showing the power of online reactions, General Mills
rapidly backed away from a planned customer no-sue
policy after a groundswell of online media protest.
While many perceive social media activities as largely
recreational, online communities are increasingly tapped in
a sort of distributed problem-solving format. NASA, NOAA
and other governmental and scientific agencies regularly
put out thorny problems for folks to weigh in on. A variety
of websites pay individuals for data analytics and to form
focus groups. Social networking is not just for picture
sharing, but for problem solving, idea sharing, and even
revolution making.
Chart 7: Number of Years to Attain 50 Million Users
Most of the technologies outlined above are not new, but
rather have been in development for decades. The pace of
change has accelerated in recent years, however, and many
once-discrete paths are converging. Adoption is happening
in shorter and shorter time frames and more of the world is
participating. For example, Chart 7 illustrates that it took 75
years for the telephone to reach 50 million users. Television
matched the same statistic in 13 years, the iPod in three
years. It took just 35 days for the app Angry Birds to reach
that milestone. Welcome to the 21st Century!
Section II: Investment Implications
Traditionally, the exercise of attempting to identify winners
and losers amidst technological change would seem to be
straightforward. An investor would simply generate a list of
those most impacted and buy or sell accordingly. However,
participating profitably in the coming environment will
likely prove more complex. The technological convergence
now being witnessed will be accompanied by a myriad of
consequences that are difficult, if not impossible, to predict.
Nonetheless, in an attempt to provide some clarity, we
present herein some investment implications that relate to
the technological trends discussed in this paper.
75
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Telephone Radio TV Internet Facebook iPod AOL Angry Birds
Source: Trickle-Up: G. Kofi Annan’s Innovation & Culture musings
10Convergence: Transformative technologies in the early 21st century
Technology in Industry: Manufacturing and Logistics
The production of goods is already experiencing
a groundswell of change due to the confluence
of technological advances. 3D printing of parts
reduces the need to keep items in inventory.
Nanoparticles can make items sturdier, longer-
lasting and lighter. Robotics are already in use in
many factories, lessening the need for physical
labor and lowering associated costs such as
liability insurance and repetitive-use claims.
STEM (Science, Technology, Engineering,
Math) skill sets are needed to run such
automated production and also tend to
command higher wages.
Sensors on everything along the production and
distribution line help track inventory, assess
climactic impact, and generate data that can be
analyzed to reduce downtime, track shrinkage
and improve manufacturing techniques. Note
that these changes, as they ripple throughout
the economy, will likely impact all sorts of
government statistics, originally created in
the early part of the last century to track
manufacturing activity. Cloud computing can
provide consistent, reliable and flexible response
to help accurately size throughput to demand
on a moment-by-moment basis. Seismic and
fracking technology have combined to the
point that, for the last three years, the U.S. has
been the world’s fastest growing hydrocarbon
producer, displacing Russia as the largest
provider of natural gas. U.S. oil production has
increased by more than 60 percent since 2008.22
Manufacturers that can adopt these technologies
should theoretically benefit from higher profit
margins and cash flow as well.
1) Wall Street was one of the first and largest non-
governmental consumers of supercomputing power.
It actively recruited PhDs to program this technology.
As such, its denizens became adept at analyzing,
manipulating and profiting from Big Data. Even before
author Michael Lewis revealed many of the negative
attributes of high-frequency trading (which is virtually
impossible to execute without access to massive
storage and processing power), well-heeled entities had
the opportunity to engage in similar activities. Traders
could purchase specialized databases or gain access
to government data seconds before its release to the
general public. In short, well-financed participants with
broad, deep and early access to markets have material
advantages over the average investor or even the small
professional. This suggests that most investors should
favor low-cost and tax-efficient vehicles in highly liquid,
well-researched markets. At the same time, computing
power and Big Data analysis applied to narrow and
deep categories (e.g., distressed debt and emerging
markets) by experienced managers could provide
compelling opportunities. These would be especially
effective when coupled with more patient capital
structures found in hedge funds, debt or private equity.
2) Many benefits will likely accrue to large old-line
manufacturers that rapidly adopt and adapt. Those
who are willing to invest in new technologies and think
creatively have the opportunity to remake themselves
and emerge leaner and more profitable. Global
consumer goods companies in particular are likely to
benefit from billions of increasingly connected and
upwardly mobile middle class citizens.
3) Companies, especially those that are technology-
oriented with huge and growing cash piles, have
the financial wherewithal to employ a variety of
technologies. Most advantaged are those building
out major data, technology or vendor-independent
infrastructures.
4) Cash-rich entities that focus on innovating or
accumulating (at reasonable prices) large portfolios
of important patent and intellectual property rights,
particularly in materials and processes, should prosper.
5) It takes energy to run most technology — and lots of
it. Yet in many applications, a fast, safe, efficient, cool,
environmentally friendly and long-lasting energy source
remains elusive. Companies that could crack that code
with widely adopted and patent-secured formats could
benefit mightily.
6) After decades of drought, there may be a continued
resurgence in venture capital and merger and
11 Convergence: Transformative technologies in the early 21st century
acquisition activity, although many participants believe
that current private market valuations are pricey
compared to prior periods.
7) Companies that can afford and support significant
computing resources may see profit margins stay
higher than many investment analysts forecast, and for
longer. Examples are those that make innovative and
active use of Big Data for logistics or control multiple
layers of consumer purchasing or content information
and access, such as Google, Amazon Prime and Netflix.
8) Businesses that cater to citizens in emerging markets
may benefit as they bring the latest technology to bear
without being encumbered by outdated infrastructure.
9) On the downside, cell phone manufacturers may be
harmed as consumers migrate to low-end devices. As
an example, the compound annual growth rate in low-
end phones has been 20 percent annually versus 10
percent in the more profitable high-end products.23
10) Large computer hardware producers may not benefit
from the trends discussed above. In general, hardware
is fighting deflationary forces; note the following:
• Price deflation/commoditization — Moore’s law
provides cheaper solutions, and software
advancements have allowed improvements in
existing hardware. Although Big Data requires
significant computing power, today’s existing
hardware will prove cost-effective.
• Not all data is “big.” Much of it is very small
(tweets, emails, webpage) and will not require huge
advancements in hardware. Other popular data
(videos) can be stored in only one or a few places,
perhaps for only short time periods, and that may
limit the need for hardware solutions.
• Large Internet companies produce their own
hardware and remove the middleman. Google and
Facebook, for example, do not buy hardware from
major vendors like IBM or Dell but instead purchase
components directly from others and then install their
own software. Hence, Big Data is more likely to
benefit Internet and software-based companies at
the expense of major hardware producers.
Section III: Potential Roadblocks and Bottlenecks
The future in transformative technologies is indeed exciting
and the next few decades are likely to reap big rewards for
consumers and individuals. These technologies, however,
are often called “disruptive technologies” for a reason. The
changes they bring can be uncomfortable or worse. The
stubbornly high unemployment rate subsequent to the
2008 financial crisis, for example, raises fears that some
lost jobs may not be retrievable. While change can be
exhilarating, it is also typically disruptive, exhausting and
uncomfortable. What follows are a few factors that could
slow, derail or divert progress:
• Inadequate or inhospitable regulatory infrastructure — Many
of the emerging technologies, such as DNA engineering,
manufacturing synthetic DNA or mutating various
biological agents are running far in advance of regulators’
ability to manage them. Historically, innovation goes
unchecked until some blowup or meltdown prompts a
hard stop and regulators can parse through the wreckage
in an attempt to establish a more rational approach.
Sometimes that process gets too restrictive for innovators’
tastes. Typically, capital and investment will go where it
has the most supportive environment from a taxation,
regulation and infrastructure perspective. Over the past
30 years, the U.S. Food and Drug Administration has
become increasingly stringent in the time it takes to get a
new drug, device or medical process to market, a fact that
has not gone unnoticed in the rest of the world. Research
in key fields is leaving the U.S. as companies find more
amenable environments elsewhere. China now spends
more on nanotechnology research than does the U.S., for
example, while Japan spends more on robotics research.
• Installed infrastructure — To the extent that a country
has a large installed base of an old technology (CDMA in
the U.S., or landline telephones, as examples), it can be
financially damning for constituent companies to write
down or abandon their investments to focus on new
technologies.
• Lack of partnership between education and business — In
the U.S., much has been written recently about the need
to improve STEM training throughout the educational
system. In support of that notion, despite a high
unemployment rate, 600,000 highly skilled manufacturing
jobs are currently unfilled due to a mismatch in skill sets.
• Resistance to change — Individuals, businesses, and laws
can be slow to adapt and change. Many humans are just
not wired to adapt quickly.
12Convergence: Transformative technologies in the early 21st century
Technology in Industry: Consumers
Perhaps nowhere in the context of convergence
is a segment benefitted more than the individual
consumer. As noted earlier, the prices for
massive amounts of data and processing power
— combined with a camera, radio and TV —
can be obtained for a few hundred dollars.
Consumers can get customized news, sports,
music and entertainment, when and where
they want it. They can order food, clothing,
jewelry, accessories and gifts and expect
next-day (or sometimes, for the geographically
blessed, same-day) delivery. Someday soon,
driverless vehicles should be able to operate
with little down time, optimizing vehicle usage,
gas mileage, road capacity utilization and
productive time.
Technology in Industry: Financial Services
The financial services industry — consumer and
investment banks, insurance companies, brokers
and Wall Street itself — was an early adopter of
technology, especially to accumulate, analyze,
evaluate and monitor data. Despite the level of
technology adopted, more than 85 percent of
global transactions are still done with cash.24
Given the rapid rise in access to mobile resources
referred to earlier, this could obviously change
quickly; Cisco Systems, Inc. estimates that more
than half of mobile network devices will be
“smart” by 2018.25 With electronic banking and
Electronic Funds Transfer, financial institutions
could facilitate both ends of a transaction without
technically assuming risk or even having a
physical presence in a particular country.
• Inability to measure impacts/calculate profitability — Many
companies with rigid return-on-investment requirements
may be slow to adapt to or adopt unproven technologies,
particularly those that lead to shifts in end markets.
• Potential for terrorism — The more connected everything
is, the more acute the potential for terrorism. To the extent
that we integrate critical networks (e.g., the electrical
grid or global funds transfer system) without appropriate
safeguards, there is vast potential vulnerability. In 2006,
for example, journalists from the British newspaper The
Guardian were able to order a portion of smallpox genome
and have it delivered for $60 including postage. While
some terrorism may come from purely evil intent (biological
warfare, for example) other vulnerabilities may be exposed
by someone merely pursuing an intellectual challenge.
• Need to address aging infrastructure — Much of the
mechanical and transportation infrastructure in the
United States was first installed during the last Industrial
Revolution in the late 1800s and early 1900s. Even the
“modern” interstate highway system is 60 to 70 years old.
It is crumbling and has suffered from underinvestment for
decades, necessitating significant expenditures to facilitate
the pressures of a growing and changing economy.
• Still behind needs for energy use, storage and battery
capacity — Innovation in the use of energy, cool storage,
miniaturization, and related areas must continue. The
U.S. has seemingly ceded much of this expertise
to foreign enterprises.
• Insufficient radio spectrum — If projections of upwards
of a trillion “things” connected to the Internet come even
close to fruition, there will either be a need to free up
sufficient radio spectrum to accommodate the information
flow, or new communications technology will be needed.
Conclusion
As mentioned at the outset, many of the technologies
discussed in this paper have been around for decades.
The pace of change and its integration into a single
geometrically-expanding force has reached a critical tipping
point, however. The broad impact will be felt across virtually
all industries and in all walks of life, potentially lifting
millions, if not billions, of citizens into an improved standard
of living. We look forward to engaging clients and others
about the implications of convergence for years to come.
E N D N O T E S :
1 http://www.merriam-webster.com/dictionary/convergence
2 McKinsey Global Institute, Disruptive Technologies: Advances that will transform life, business, and the global economy, May 2013
3 Mashable.com: http://mashable.com/2013/09/12/voyager-1-iphone-5/
4 http://en.wikipedia.org/wiki/watson_(computer)
5 http://en.wikipedia.org/wiki/Big_data
6 http://www-01.ibm.com/software/data/bigdata/what-is-big-data.html
7 McKinsey Global Institute, Disruptive Technologies, p 5
8 (https://aws.amazon.com/big-data/
9 McKinsey Global Institute, Disruptive Technologies, p 63
10 McKinsey Global Institute, Disruptive Technologies, p 52 – but also quotes Joseph Bradley, Joel Barbier, and Doug Handler, Embracing the Internet
of everything to capture your share of $14.4 billion, Cisco Systems, February 12, 2013
11 http://www.pewinternet.org/fact-sheets/mobile-technology-fact-sheet/
12 Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2013-2018, http://www.cisco.com/c/en/us/solutions/collateral/service-
provider/visual-networking-index-vni/white_paper_c11-520862.pdf
13 https://www.cia.gov/library/publications/the-world factbook/rankorder/2151rank.html
14 McKinsey Global Institute, Disruptive Technologies, pp 115-121
15 http://www.bbc.com/news/business-25833264?print=true
16 Foreign Affairs, The Internet of Things, March/April 2014
17 McKinsey Global Institute, Disruptive Technologies
18 Computerworld Magazine 12/26/2013
19 Foreign Affairs, Jan/Feb 2014
20 http://www.pewinternet.org/data-trend/social-media/social-media-use-by-age-group/
21 The Guardian 4/1/2014
22 Edward L. Morse, Welcome to the Revolution, Why Shale is the Next Shale, Foreign Affairs, May/June 2014
23 Bernstein Research: “Ubiquitous Connectedness and Big Data: Who Will Benefit” (August 2013)
24 http://www.mastercardadvisors.com/cashlessjourney/
25 Cisco Visual Networking Index: Global Mobile Data Traffic Forecast Update, 2013-2018
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