New ways of seeing.

Innovation Trends 2018 - The 4th Industrial Revolution

(Taken from a lecture that I gave recently— if you don’t want to read you can scroll down to a video at the bottom of this post!).

For the past 6 months I’ve been immersed in researching innovation trends, all over the globe. There’s a lot going on right now, and I’ve been kind of obsessed with exploring it all.

So I’ve spent several months talking to smart people all over the globe. I’ve met with venture capitalists, corporate execs, entrepreneurs, university researchers — a bunch of really smart people.

As I said, there’s a lot going on right now — and it’s a great year for buzzword bingo. Blockchain, AI, machine learning, containerization, neural networks, augmented reality, yada yada yada.

Of course for those of us running businesses, we have to play buzzword bingo every year, trying to figure out which ones are worth paying attention to and which ones aren’t.

Innovations tend to be overestimated in the short run, and underestimated in the long run.

This goes on every year. However I’m here to tell you that the change going on in 2018 isn’t just another incremental year. It’s a step change. There’s some profound stuff going on right now.

There’s probably more innovation going on today than at any time since the Victorian Era — the era that brought us photography, the bicycle, electric light, and the telephone.

The innovation going on right now is so profound that The World Economic Forum is calling it the Fourth Industrial Revolution.

The physical, digital and biological worlds and merging in a way that I think will impact every sector in every corner of the world.

The first Industrial Revolution, of course, had to do with the steam engine and machines that amplified human muscle. The Second Industrial Revolution was about electricity and mass production, the third had to do with information technology, from mainframe computers to personal computers, smartphones, and the internet.

But now we are entering different. The fourth Industrial Revolution. It’s bringing the three previous ones together plus digital, biotechnology, and cognitive technologies to create a completely new industrial era.

And it’s bringing change at a speed, scale, and force unlike anything we’ve experienced before.

Each Industrial Revolution has been partly about new inventions — new technologies if you will — but each has been against a larger backdrop of socioeconomic changes.

So let’s start by taking a look at the socioeconomic trends against which the fourth Industrial Revolution is happening.

  • Populations are becoming more urban.
  • Young people rule.
  • There’s a sea-change in the nature of illness. 60% of people in the world today die from non-communicable diseases.
  • Freer capital flows, migration and trade tend to even-out demographic imbalances more rapidly than in generations past.

Innovation also takes place against the backdrop of governments, regulations, and politics.

And there’s one point I’d like to highlight — and that’s Europe’s renewed commitment to reclaim their position as a leading center of innovation.

Europe continues to be the largest producer of knowledge, as it has been for centuries, but for the past couple of generations they’ve missed out on some opportunities to commercialize innovation. The most famous example, of course, is the WWW which was developed at CERN in Switzerland, but commercialized by American companies.

Every European investor and corporate exec I meet with these days tells me how that’s about to change. Last year 4.3 billion Euro flowed into European startups, The EC recently announced a fund-of-funds to further increase VC investments in Europe. Spotify, headquartered in Stockholm, is doing $5 billion/year in revenue and has filed for an IPO which is going to flow a lot of money into Sweden. Transferwise from Estonia had a valuation of $1.3 billion in their last financing. There’s a lot going on in Europe right now.

And, of course, there’s a lot of sector disruption all around the world right now. In any industrial revolution, disruption causes some roadkill.

Some of the well-publicized recent disruption has included the ways in which native-digital companies such as Uber, Airbnb, and Amazon have driven long-established companies into bankruptcy. And native-digital fintech companies are disrupting centuries-old financial services firms.

So, a lot of disruption going on right now. In fact, the lifespan of large incumbent companies has never been shorter. Just look at the churn rate on the S&P 500: At the current churn rate, half of today’s companies on the S&P 500 will be replaced in the next ten years.

For those of us running companies, then, the question is how do we avoid being roadkill?

Well, one way is to see some patterns that may help us predict what the next few years will look like.

So after several months of research, talking to some really smart people who doing some really amazing things, let me make some predictions of where I think things are going:

First, it must be said that Cognitive Technologies lead the 4IR.
Artificial intelligence, Machine learning, deep learning, neural networks — these can be simply be called cognitive technologies — giving machines the ability to think and learn. In the 4th Industrial Revolution humans will be able to offload the easy thinking to machines so that human brains can work on the hard thinking.

The future is cashless. And fast.
In fact, some countries like Sweden are already almost cashless and other countries like India have declared cashless as a goal. We’ve seen startups like mPesa, Stripe, Venmo, Square, and Transferwise enabling this, and we’ve seen huge platforms like Apple, Google, and Facebook incorporate cashless payments. Plus Blockchain and other stuff going on in the cryptocurrency space. Paying for anything with paper money will be going away.

In the 4th industrial revolution payment friction will be reduced to almost zero.

Consumer proximity is back.
It used to be, of course, that all goods and services were produced where the customers were. But then we entered the era of mass production, the era of moving mass production where labor is cheap, and developing huge transportation networks to move products from where they are made to where they are consumed.

But we’re entering a much different era now. Things like 3-D printing will allow products and parts to be produced on-demand in proximity to the customer. Things like hydroponics allow more crops to be grown within cities. Robotics bring the scale of many to an output of one. And the geographic labor arbitrage opportunity is diminishing. Labor cost in China today is higher than some spots in Eastern Europe and Latin America. Consumer proximity is coming back.

Healthcare. Accelerating query to cure.
As I mentioned earlier, the majority of worldwide deaths are now from non-communicable disease, mostly because 60 years of vaccine development and distribution has worked. Which means the next frontier is cancer, diabetes, and other non-communicable diseases (many of which are thought to have a genetic component).

Meanwhile, gene editing technology is now here, things like CRISPR are giving us the ability to alter genetic sequences. There is a whole new wave of startups doing kinda spooky things like altering the genetic makeup of certain pigs so that their organs can be grown for ready-transplant into humans. Other startups are using AI and predictive analytics to determine where the next drug development opportunities are.

Thinking more broadly about medical care, here’s an important point, I think: For generations, the job of a physician doing a diagnosis has largely been pattern-matching. A physician examines a patient, notes all the symptoms, and then in their head tries to match the symptoms observed with maladies in textbooks. Well, it turns out that pattern matching is something that computers are really good at.

And more medical data is captured every year now than was captured previous 100 years, so we have increasingly large data sets to pattern-match against.

So, for example, a computer today can view a skin growth, diagnose it through pattern matching, provide statistical prognosis and relevant treatment regimens, all in a matter of seconds. And it can even do this remotely. This has tremendous implications for amplifying the effort of health care professionals. I think this is particularly exciting in the developing world where the ratio of population to specialized physicians is much different than it is in the developed world. The impact leverage that new technologies provide health care professionals will be a game-changer in the global health.

Iot (internet of things) becomes 20 billion more internet end-points.
IoT has been one of the big buzzwords that past couple years, but the default will simply become that every thing is connected to the internet. The chips are getting cheap, and gigabit 5G networks are on the horizon. It is particularly impactful on the industrial side — instead of fixing machines when they break, IoT sensors combined with predictive analytics means that machines will now tell us when something needs maintenance before it breaks.

Perhaps even more exciting is the way that IoT is enabling entire new business models — it’s already happening in jet engines which can now be sold by hour of use, with each engine component reporting real-time data back to the manufacturer. This changes the way capital equipment can be sold. Think about the fact that a consumer appliance like a washing machine could be installed in a home for free and then the consumer is simply charged for use. BMW and Lexus have recently announced plans to sell cars on a subscription basis. The question now isn’t whether IoT is a thing, it’s about how IoT can completely change the way that companies deliver goods and services.

And that brings us to Personal Mobility.
It’s pretty clear to all of us that personal mobility — how people and goods get from point A to point B — will be completely changing, especially in urban areas. Autonomous cars, robot delivery, shared driverless cars, flying autonomous vehicles. It’s happening — all of these things are in production now.

Larry Page’s new autonomous air taxis have already just been given regulatory approval to operate in New Zealand. The air taxis are electric, and there’s no pilot. You just get in and it flies you where you want to go.

Closer to home, California just approved autonomous cars for driving the roads of the state without a safety driver.

So personal mobility will be changing dramatically. But what’s worth thinking about is all the collateral opportunities for innovation that will be created — if the traditional owner/driver model for cars is over, then we’ll need far less space for parking — what will we do with all those parking garages? How will insurance work — clearly we’ll need some innovative new insurance products. How will the way that people eat-on-the-go change? How is urban planning different in the post-automobile age? In the 4th Industrial Revolution, the disruption to personal mobility will open up all kinds of new business opportunities.

Mobile is no longer a thing. It’s just everything.
For the past few years, smartphones and mobile apps have been a big thing. Every company had to have a “mobile strategy” and every entrepreneur has been looking for the home run mobile app. But we’re now approaching a mature mobile market — everyone has a mobile device and everyone uses it for everything. There are zillions of mobile apps available — no one wants another standalone mobile app. Today, mobile is simply expected to be one of many different end-points through which consumers interact with large platforms. Mobile is no longer a thing. It’s just everything.

Commerce goes conversational.
Humans love to chat, as we’ve seen from the popularity of texting and messaging apps. Now, with AI, machine learning, and voice platforms such as Alexa, Siri, and Google Home, chat is becoming a legitimate software interface. In 2018 we will increasingly see things like customer service handled by chatbots. Since something like 80% of customer service inquiries are routine enough that an AI-driven chatbot can easily handle them, this frees-up the high-value humans to respond to the 20% of inquires that are more difficult. I call this kind of leverage augmented intelligence.

But really, it goes way beyond ai-driven chat, today voice and vision are now software interfaces as well.

The past 30 years have been about our learning how to work with computers. The next 30 will be about computers learning to work with us.

Open Innovation is winning.
We’re definitely in an era right now where some of the most profound developments are happening with the open innovation model. Most leading software today is built using open source tools and libraries. Blockchain has the potential to revolutionize financial services platforms, and Blockchain isn’t “owned” by anyone. Android — an open source software project — has the largest installed base of any operating system in history. If you’ve read the Eric Raymond book called the Cathedral and the Bazaar, you know that we’ve gone through periods where innovation was centered in the cathedral and periods where it’s flourished in the bazaar. We are definitely in a period where innovation is flourishing in the bazaar right now. When it comes to innovation, getting multiple points of view accelerates the process of finding revolutionary solutions.

The democratization of entrepreneurship.
This is, perhaps, the thing I’m most excited about. In the 4th Industrial Revolution, anyone can be an entrepreneur. The means of production are available to all in a way that is really pretty unique in human history. The second and third worlds now have access to the same body of knowledge that the first world has. Innovation can happen from the bottom up today, not just from the top down. This is a huge multiplier on economic empowerment.

OK, so we’ve looked at buzzwords, trends, and roadkill. There’s a lot of I haven’t covered here — China, virtual reality, cryptocurrencies, changing consumer expectations, and much more. Those will have to wait for another presentation.

But suffice to say, there’s a lot going on right now.

I’d like to finish by borrowing a framework from Benedict Evans at Andreesen Horowitz.

The various waves we’ve had in tech can be visualized as S-curves. PC sales started out slowly, then sales exploded, then they leveled off. And about the time they leveled off, various extensions to the PC platform appeared. And then things appear to be about done, and everyone gets bored, and everyone says that innovation is dead.

And then, of course, the next S-curve appears. And once again toward the end of the cycle everyone declares that innovation is dead.

But of course it’s not.

I’ve spent my entire career in Silicon Valley, I’ve seen several different waves of innovation. But I think the opportunities, around the world, are bigger now than they’ve ever been.

I’d love to hear your thoughts on what you see as current innovation trend lines. Email me at bretwaters@gmail.com

I’m a Silicon Valley guy. I teach entrepreneurship at Stanford, coach startup CEO’s at Miller Center, and run the 4thly Startup Accelerator. Also, I love tacos.

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