For industrial companies, the current technological progress is an existential threat, but it’s also the opportunity of the century.
In Nazare, a little village on the coast of Portugal, roughly 120km north of Lisbon, Brazilian surfers Carlos Burle and Maya Gabeira are in the water as the biggest wave ever to be surfed unfolds behind them. 100ft tall (or 30.48m) to be precise. Burle will set the world record that day for surfing the tallest wave ever to be surfed by a human being, while Gabeira is knocked unconscious by the mass and the force of the ocean. The date is October 29, 2013.
October 29, 2013, is also the day after Google’s promotion of Google Glass, Apple announced a record quarter of 34M iPhones sold, and Amazon opened its fourth fulfillment center in California with the plan to hire additional 70,000-holiday workers.
The point of this story? The height of the wave of technological progress was already daunting in 2013. With many new technologies driving rapid change online and offline, incumbent players, especially in traditional industries like manufacturing or transportation, are caught flat-footed. Today, they are in a similar situation as the Brazilian surfers Burle and Gabeira almost four years ago — they can ride this unprecedented wave of technological change and set their own world record, be knocked around while trying, or be knocked out cold as you watch the wave unfold.
Humanity has witnessed drastic change driven by technological progress before. The first and second industrial revolutions were jumpstarted by the steam engine and accelerated by a host of manufacturing technologies and finally electrification. Many of the traditional industrial companies still existent today greatly benefitted from the opportunities created by this technological progress. Less relatable for these players is the continuation of the story, dubbed the Information Age. One could argue that this third wave started as early as the 1960s with the incorporation of Hewlett-Packard, Fairchild Semiconductors, Intel, and the establishment of the ARPANET. These developments rapidly accelerated in the 1980s due to significant advances in computing power, information storage, information transmission, and, of course, the Internet as we know it today — paving the way for companies like Google, Amazon, and Facebook.
Today, we’re seeing a Nazare-like wave of technological progress as essentially all industries and companies are headed at full speed toward the Age of Automation. Based on increased bandwidth, cloud storage, and sensor technologies like Artificial Intelligence, the Internet of Things, Virtual and Augmented Reality, Robotics, or Bioinformatics will change the way we live our personal lives as well as what products or services companies will (or must) provide, or in which industries they will play.
At wattx, we refer to this fourth wave as the chapter of deep tech. Let’s start with the obvious question: what exactly is deep tech? While there is no official definition, an aspect that venture capitalists will refer to when they differentiate between a tech company and a deep tech company is the degree of IP, i.e. a new piece of technology at the core of the startup’s product. We feel this definition is too narrow and hence define deep tech more broadly as a playing field that involves a range of disruptive technologies, such as IoT, AI, VR, or Decentralized Networking.
Taking a closer look at the chapter on deep tech, we see that its plot has two main parts: the significant challenges deep tech presents for incumbents and the massive opportunity arising from the same exact technologies.
Deep tech is at the core of the fundamental shifts that are challenging incumbents from every angle. Change is coming faster and more frequently than ever before. What should keep these incumbent companies up at night is the fact that these technologies within deep tech don’t just disrupt their core businesses: they are creating entirely new industries at unprecedented velocity. It is easy to miss these opportunities and then watch your core business derail if you fail to set foot in a rapidly emerging industry. Putting ourselves in the shoes of CEOs, CDOs, CIOs, managers, as well as shareholders of incumbent companies, we can understand how paralyzing this wave of technologies must be.
To make things worse, there are already many examples of incumbents in very traditional industries that have lost ground to new players: startups or one of the famous tech giants are entering their industries or pushing them to the brink of irrelevance. Let’s look at a few examples:
Google is creating solutions to predict both the demand and the ability of a homeowner to generate solar energy, while also helping to manage the ensuing transactions. Airbnb and Facebook could leverage their respective user bases and the knowledge about them to purchase carrier mileage from traditional airlines, effectively turning Lufthansa, Emirates, and company into commodity logistics providers. Uber, Didi, and Lyft are turning the “car ownership” model on its head as consumers actively push into a “car-sharing” world, leaving the car industry heavyweights scrambling for answers. And Palantir uses big data to predict and manage strategic warfare behavior on the path to eradicating the need for physical interactions or countermeasures in war zones. These patterns exist across industries, so there’s no reason to get comfortable if your industry hasn’t been affected yet. Especially since many of these deep technologies are already becoming cheaper and widely accessible — look no further than Tensorflow, an open-source deep-learning library for machine intelligence.
As with every good story, there’s hope. And with every great challenge, an opportunity. With deep tech, we’re likely talking about the opportunity of the century. Here are some numbers that make the point:
Just the market for the Internet of Things alone is set to grow at a CAGR of 21% and is expected to reach a global market size of USD 11 trillion in 2025. Global manufacturers seem to have realized the massive opportunity at hand, as they lead the way with investments anticipated to reach USD 70 billion in 2020. According to CB Insights, startup funding in the space of AI crossed the USD 5 billion thresholds in 2016. The global market for blockchain is set to reach a size of USD 8 billion in 2024. And Atomico reports funding of deep tech startups in Europe of USD 2.3 billion since 2015. This opportunity stretches across many industries and the top five sectors accounting for over USD 9 trillion of the total.
or us, it’s not an option to simply wait for the wave to knock out those standing on the shore. Yes, the challenges are tough and it will take a significant effort to tackle them and come out on top — but it is the only viable option. From corporate venture capital to dedicated intrapreneurship programs to innovation labs, there are many ways to get started on your journey towards a promising future. At WATTx, we are convinced that our company builder model in deep tech offers industrial incumbents unparalleled access to these deep technologies and a unique way to hedge your industry risk. And Werner Vogels, the CTO of Amazon, seems to agree with us.