The Cyclical Nature of Industry Disruption

Posted by Tom Barbereau on December 2018

Welcome to the wrap-up in our series exploring blockchain technology, Internet of Things (IoT), and democratic forms of investment. In this third edition, we highlight the importance of sustainable business models in the context of the Fourth Industrial Revolution. The first installment looked at data-driven business models, and the second examined two decentralized investment techniques. Now we aim to answer: What can we learn from historical trends to inform the future of tech?

Anticipating an Industrial Revolution through Economic History

Since the 19th century, the United States has been at the frontier of global productivity and innovation regarding the standard of living. In 2014, Yale University economist Robert J. Shiller was awarded the Nobel Prize in Economics for his "empirical analysis of asset prices." He developed the S&P Composite Real Price Index, used to measure stock value over a longer period of time. His data would be the basis for investment analysis trends going forward:

Real S&P Composite Stock Price Index

Over the past 250 years, savings (in diverse forms including pension and investment funds or cash) have effectively been lent to create new productive enterprises and power industrial revolutions. Starting in mid-18th century Great Britain, the First Industrial Revolution brought inventions such as steam engines and railroads across the Atlantic to double US productivity.

Only a few decades later, the Second Industrial Revolution came with electric light, television, and the internal combustion engine– and again US GDP doubled between the 1920s and 40s. A Third Industrial Revolution from the late 1950s onwards, produced computers and the Internet, and yet again, US GDP doubled. (1)

Iron and Coal by William Bell Scott, National Trust Wallington, EnglandIron and Coal by William Bell Scott, National Trust Wallington, England

To illustrate the impact of innovation investment on GDP, the US stock market serves as a good proxy. While the market traded in a lower range from 1820 to 1870, it doubled in value from 1871 to the early 1900s. America transitioned from an agrarian to an industrial nation as investment in technologies from the First Industrial Revolution paid off.

At the beginning of the 20th century, stock values declined due to an ‘aftershock’ following World War I. Yet during the Roaring Twenties, Western economies recovered and capital poured back into the market, sending the values of firms such as Ford Motor Company and General Electric (the ‘startups’ of the early 1900s), to eventual extremes. These corporates became the employers of thousands and became some of the biggest contributors to American GDP.

In a later stage, the Second Industrial Revolution encouraged growth from inventions including plastics, electronics, and pharmaceuticals that allowed the Allies to eventually win World War II. Later during the Cold War, the US and the Soviet Union got into an innovation race that led to major advancements in aerospace and nuclear technologies.

However, as the market peaked in the 1960s and crashed shortly after in 1974, new opportunities emerged with companies such as Microsoft, Apple, Cisco and a number of other ‘dot-coms’ that truly ‘launched’ the digital area with the Third Industrial Revolution.

Today, new discoveries in nano-engineering, genetics, computing and material sciences bring forth a new wave of innovation - technologies that, as in past industrial revolutions, will be growth multipliers. Developments hinting at a Fourth industrial Revolution are found in the sustainable energy management, the machine-to-machine economy and around blockchain, or peer-to-peer based networks. Still, we can not yet precisely predict what technologies will be remembered in several decades.

On the Cusp of the Fourth Industrial Revolution

Previous industrial revolutions allowed humanity to shift from an agrarian and rural society to become increasingly industrial and urban, making mass production possible, and bringing worldwide connectivity and digital capabilities to billions of people. The founder of the World Economic Forum Prof. Klaus Schwab published his book The Fourth Industrial Revolution in 2016, at a point in time when technologies were beginning to

“challenge ideas about what it means to be human.”

Looking at the past industrial revolutions, the First used steam power to mechanize production. The Second used electric power to enable mass production. The Third used electronics and digital technologies to automate production. The Fourth Industrial Revolution is, however, fundamentally different as it is “characterized by a fusion of technologies that are blurring the lines between the physical, digital, and biological spheres”, Schwab writes in an article for Foreign Affairs.

This transition is catalyzed by the shift from a centralised to a decentralised system, one that will run itself on an interconnected network labelled the Internet of Things. Across industries, it will revolutionize the way we manage, move and power our economic activity.

Beyond the Internet of Things, the convergence with blockchain technology and artificial intelligence is what ought to bring a new economic paradigm: the sharing economy, (not to be confused with the circular economy). As human relationships evolve from hierarchical to lateral power, thousands of business and millions of jobs will be fundamentally altered and reorganized.

Smart industries, data-driven and sustainable business models will be the driver of the economy of tomorrow. With artificial intelligence, blockchain and IoT technologies, future-ready business models need to be developed–allowing society to gradually become sustainable and carbon-neutral. Read our Framing the Industries installment on nrgen, a Next Big Thing AG venture ready to disrupt the energy industry.

It is essential for businesses to anticipate and master the Fourth Industrial Revolution - a topic central to the World Economic Forum Annual Meeting 2016. Amongst other prominent attendees, Robert J. Shiller was also present and suggested that, “you cannot wait until a house burns down to buy fire insurance on it. We cannot wait until there are massive dislocations in our society to prepare for the Fourth Industrial Revolution.”

Sustainable Business Models in the Context of the Fourth Industrial Revolution

Looking at the graph hints toward a new wave of investment into cyber-physical systems, the Internet of Things, cloud computing, cognitive computing and all the resulting industries or applications of the Fourth Industrial Revolution. In this new economic system, businesses become increasingly data-driven, and topics such as cybersecurity become a matter of ethics.

At Next Big Thing AG (NBT), we anticipate this industrial revolution by building future-proof companies with a long-view in mind. As a venture builder, we develop sustainable business models with a focus on the Internet of Things, growth markets, and the future of blockchain technology.

Though the inherent complexity of IoT and blockchain require appropriate development time for future applications, these technological advances secure long-term earning opportunities across diverse and massive markets. Researchers Deloitte and Gartner estimate that IoT’s market potential alone will reach over $1 trillion by 2020.

Through our know-how and ecosystem in IoT and blockchain, we strategically leverage synergies, achieve results faster, and reduce risk with new, digital and sustainable business models that favor the growth of innovation. Our Chief Investment Officer, Martin Buhl, explains further: 

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Tags: Blog, IoT, Blockchain, Investment