Andrew WyckoffDirector of Science, Technology and Innovation
OECD11 September 2020
COVID-19 and digitally induced structural change
Digital Economy Forum 2020 (DEF2020)
11 September 2020
Some big leaps along path towards digitalisation…
The mainframeIBM 360 (1965)
Personal ComputerIBM PC (1981)
The Internet / WWW (1995)
WiFi and 3G (1999, 2001) iPhone
(2007)
“Big” data, machine learning, AI (2018 Turing Prize)
…while others were not as big as expected at first.
The Year 2000 bug (2000)
Virtual Reality and avatars (2003)
Google Glasses (2013)
Going Digital flagship reports
https://doi.org/10.1787/9789264312012-en https://doi.org/10.1787/9789264311992-en
The OECD’s recent work to assess the digital transformation -- “Going Digital” -- and ….
Scale, scope and speed
Ownership, assets and
economic value
Relationships, markets and eco-systems
Scale without mass
Panoramic Scope
Speed: Temporal and Intertemporal
dynamics
Intangible assets and the new forms of value creation
Transformation of space
Empowerment of the edges
Platforms and eco-systems
…into their properties that disrupt public policy.…the fundamental properties that affect policy.
https://read.oecd-ilibrary.org/science-and-technology/vectors-of-digital-transformation_5ade2bba-en#page1
Scale without mass
Coursera: 2000+ courses, 24m users, 30 languages
Whatsapp: 300m users, 50b message/day, 55 employees
Wikipedia: 40+m articles in 300+ languages, 15b+ views/month, 280 staff
Challenges policies aimed at “small” businesses, de minimus activity. Allows a global reach with no footprint, challenges notions of
sovereignty.
1) Scale without mass (or a physical footprint)
Panoramic Scope
Challenges policies based on traditional sectoral/product lines, rise of multi-sided business models or legacy conceptions of the roles of
particular actors.
2) Panoramic Scope
8
New Holland : Precision Land Management
AWS: Cloud Computing
Challenges policies directed at capital, e.g. tax incentives or accounting rules, trade policy (goods vs services).
Intangible capital and the new forms of value creation
Rolls Royce: Power-by the-
hour
3) Intangibles and new sources of value creation….
Storage
Map reduce
Analytics
data analytics & software
1010111010101001010010101010110101001010101001000100
10001010
1010111010101001010010101010110101001010101001000100
10001010
big data value addedknowledge
Data: a new factor of production?
9
….especially data.
COVID-19 is accelerating structural change…
“We’ve seen two years’ worth of digital
transformation in two months.”
Satya Nadella, CEO Microsoft, commenting on MS’s Q1 2020 earning report
and the surge in Teams use.
Large demand drop for sectors that enable mobility…
https://www.counterpointresearch.com/global-smartphone-shipments-plummet-300mn/
…and even devices that enable mobility.
Demand for “social distancing” affects real estate….
https://www.statista.com/chart/22196/manhattan-apartment-sales-coronavirus/ and https://www.nytimes.com/2020/08/30/nyregion/nyc-suburbs-housing-demand.html
Japan - NTT
Communications:
increase in data usage
of 30% to 40%
Korea: traffic increases of
13%, reaching 45% to 60% of
deployed capacity
UK – BT: 35% to 60% increase in
daytime weekday fixed
broadband usage
Spain – Telefónica: nearly
40% more bandwidth; mobile
traffic growth of 50% voice
and 25% data
Telecom Italia: traffic
increase of 70-90% in fixed
networks and 30% in
mobile networks
United States - AT&T: mobile
voice minutes up 33%, Wi-Fi
call minutes up 75%.
Verizon: 52% increase in
VPN traffic
While sectors that enable staying in place or maintaining “social distance” thrive…
0
25
50
75
100
0
3
6
9
12
%Tbps
Sep 2019 Dec 2019 Mar 2020 Growth, Sep 2019-Mar 2020 (right axis)
Internet bandwidth at Internet exchange points, by country
….beginning with the underlying Internet infrastructure which has seen a surge in demand.…
…that enables an acceleration of existing trends that allow consumption of services at a distance: e-commerce,…
16 March + 100k
14 April: + 75k
…spreading across retail….
https://www.zdnet.com/article/shopifys-q2-shines-as-businesses-go-digital-en-mass-amid-covid-19-pandemic/
https://www.nytimes.com/interactive/2020/04/07/technology/coronavirus-internet-use.html?smid=em-share
….but also a sharp increase in tele-work, e-learning….
0
20
40
60
80
100
120
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Million
United States streaming membership International streaming membership
Netflix subscribers, in thousands (2010-19)
Source: Netflix, Quarterly Earnings data, www.netflixinvestor.com/financials/quarterly-earnings/default.aspx.
…entertainment…
Q1 2020
https://www.missioncriticalmagazine.com/gdpr-policy?url=https%3A%2F%2Fwww.missioncriticalmagazine.com%2Farticles%2F92949-covid-19-fails-to-slow-cloud-spending
…“cloud” computing,…
https://www.verdict.co.uk/big-tech-results-q2-2020/
…and “big tech” is thriving...
…but not all “platforms” are succeeding…
•Uber 2020 Q1-Q2 ride sharing revenue down 57%
•AirBNB 2020 Q1-Q2 revenue down 60%
“COVID-19 Is Also a Reallocation Shock” by Jose Maria Barrero, Nick Bloom, and Steven J. Davis, WORKING PAPER · NO. 2020-59, MAY 2020; https://bfi.uchicago.edu/wp-content/uploads/BFI_WP_202059.pdf
…and new entrants (US) are down...
… and a missing generation of new firms could have a persistent negative impact on jobs.
Persistent employment losses following a 20% decline in the number of entrants
Source: OECD (2020) , “Start-ups in the time of Covid-19: facing the challenges, seizing the opportunities”
Source: Mary Meeker, Internet Trends 2019, page 157
….or a crisis that necessitates change?.
Will Covid impact be an “inflection point” or a “blip”?
Human behaviour is very “sticky”
Germany
United States
France
0
1
2
3
4
5
6
25-Mar 01-Apr 08-Apr 15-Apr 22-Apr 29-Apr 06-May 13-May
Bill
ion
$Evolution of Covid-19 related research funding
Government research organisations funding calls Intenational initiatives Philantropic/non-profit organisations Industry schemes and partnerships
Data were gathered from public sources published by funders. Overall funding is underestimated as expected level of funding is not yet known or validated for all funding
schemes, and some funders do not disclose publically the sums allocated. The sharp increase in funding seen in April is linked to the clarification of resource allocation to major
funding programmes by important research funders.
Evolution of Covid-19 research funding programmes and pledges between March and June 2020
Only science can provide an exit from the pandemic…
29
…but R&D is very cyclical: will private R&D and innovation investments resist the business cycle?
The impact of the business cycle on business R&D investments, OECD countriesAnnual growth rate
-6
-4
-2
0
2
4
6
8
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
GDP BERD
Note: BERD stands for Business expenditure on R&D.
Source: OECD (2020), "Main Science and Technology Indicators", OECD Science, Technology and R&D Statistics (database), https://doi.org/10.1787/data-00182-en and OECD (2020) "National Accounts at a Glance", OECD National
Accounts Statistics (database), https://doi.org/10.1787/data-00369-en (accessed on 11 May 2020).
2008-09 global financial crisis
2001-02 recession
Implications for Policy
•An accelerant to the digital transformation: - evolution, not revolution;- Importance of data (TTT, logistics, drug discovery);
• The Covid Crisis favours cash rich, technologically advanced firms which tend to be large firms
- renewed concern about concentration- decline in innovative start-ups.
• shift towards, intangible, KBC (R&D, IP, software, skills, data) or “intact” investments
- Decline of sectors that used traditional capital - Rise of sectors that rely on KBC (R&D, skills, software, IP,
organisational know-how and data)
More STI Covid Response Insights
OECD Covid Hub
http://www.oecd.org/coronavirus/en/
STI Policy Compass
https://stip.oecd.org/Covid.html
AI Policy Observatory
https://oecd.ai/https://oecd.ai/