Convergence - abbotdowning.com · Convergence: Transformative ... In one of the most striking recent examples of the use of Big Data, ... world’s data has been generated in the

CO NVE RG E N CE

Transformative technologies in the early 21st century

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


$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


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


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


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


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


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.


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.

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Telephone Radio TV Internet Facebook iPod AOL Angry Birds

Source: Trickle-Up: G. Kofi Annan’s Innovation & Culture musings


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


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.


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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