Reflections and Predictions

2020 – The end of the beginning

2020 has been an exceptional year. COVID was what made it unforgettable, but we will remember it for what it made clear in our collective consciousness. It made evident three fundamental shifts that will shape the next decade. It put to the fore the three do or die challenges we must solve to move forward. It brought the initial fruits of the five impending technology revolutions. 

2020 has been undoubtedly the year of COVID. However, in history books, COVID will be the anecdote. The core of 2020 will be about the transition to a new era it marked. A shift with three components:

  1. Three secular trends moving into deployment to shape the next decade: Cloud, Asia, and Data.
  2. Three do or die challenges becoming inescapable to public opinion: Inequality, Climate Change, and Cloud Democracy.
  3. Five impending revolutions delivering on their promise: Biotech, AI, Electric Mobility, Integrated Reality, and Digital Governance.

Three trends to shape the next decade: Cloud, Asia, and Data.

Cloud, Asia, and Data are not new. They have been visible to many for the last decades. COVID has brought them into the open and accelerated them even further. The world of tomorrow will be cloudified, Asia will have regained its traditional place globally, and data will have replaced capital as the scarce resource. These three trends will change the world we live in, much as the industrial revolution, the combustion engine, or the first wave of computing. 2020 is the end of the beginning of the cloud age, and now we start deployment.

Cloud penetration in 2019 was already substantial: smartphone penetration over 3Bn, Cloud share of IT spend at about 12%, and eCommerce penetration at 14% according to Statista and Gartner. COVID has pushed Cloud over the adoption chasm and made it evident to everyone. Smartphones, eCommerce, Cloud infrastructure, and video meetings have continued unmolested through the pandemic while traditional ways of living and working have stopped functioning. 2020 has showcased a new way of operating that is more efficient, environmentally friendly, and resilient. There is no going back, although the transition will be painful for many if not managed appropriately.

Asia’s rise has been long and steady. At thedawn of the Cloud age in 1990, Europe and North America represented ~55% of the world GDP in PPP vs. 27% for Asia Pacific. In 2019, Asia Pacific had already overtaken Europe and North America, at 44% vs. 43%. COVID has taken this further, showing how Asia can outexecute the West. COVID has been a nuisance for Asia Pacific, with very controlled case counts and little economic damage. To a large extent, thanks to its leadership in new technologies like 5G and IoT, aided both by decided investment and openness to the level of intrusiveness they require. For the West, COVID has been disastrous in its human and economic cost. In the West, we have preferred not to deploy technology to track and trace the virus. The difference in approach and results has pushed forward the predicted date of China’s overtaking of the US economy. It has also made companies with a substantial Asian presence much more resilient.

Data is the new scarce factor of production. Datais quickly eclipsing capital, as capital eclipsed land during the industrial revolution. It is what powers internet giants and SaaS companies that are soaring in market value. It is what has allowed Asia to control the virus effectively. It has enabled rapid vaccine development. Capital, meanwhile, is ultra-abundant. COVID has accelerated zero-interest rates, bottomless public debt, and direct subsidies to citizens, which seem here to stay. Investment capital desperately looks for productive uses: Private Equity, technology stocks, SPACs, Bitcoin, or real assets. As a banker friend recently told me, what do you do when your business’s raw material is suddenly worthless?

Three challenges become do or die: Inequality, Climate Change, and Cloud Democracy.

Inequality. Climate Change and the limits of our eighteenth-century democratic apparatus have been a problem for at least a couple of decades. COVID has forced us to confront them at an emotional level. If we don’t solve inequality, we will face populist government takeover and massive, unstoppable migrations. If we don’t solve climate change, we will devastate the planet and the habitats, creating untold economic damage. If we don’t reengineer democracy, we will face digital monopolies, crippling cyberattacks, and manipulated public opinion. These three challenges are interlinked and will accelerate each other if left unchecked. Time is short. The time to act is now. COVID let out a dirty little secret, we have the tools to solve them, and the world won’t collapse if we use them. 

Inequality between people regarding access to opportunity, basic needs, and income has been a growing problem for decades. COVID has made this front and center. For the well to do knowledge workers, the pandemic has been a nuisance. Work and life basics could go online. The problems were accessory, wearing a mask, not seeing friends and loved ones so often. For low-income service workers, it has been a complete dislocation. Work stopped, with severe financial consequences, or carried a substantial health risk. Infrastructure wasn’t there to take life online. Cramped living quarters made everything more difficult. Healthcare wasn’t assured in some countries. The K-shaped recovery is threatening to widen the gap even further. Direct subsidies have allowed keeping the gap at a manageable level during COVID; they will need to continue and expand further.

Inequality between countries has existed throughout history. However, income and opportunity gaps between countries are challenging to sustain in a world where information and capital travel freely. Like iron filings in the poles of a magnet, people in developing countries feel the pull to move to developed countries to access opportunity, healthcare, and basic needs. They are willing to risk their lives and endure hardship to do so. The numbers add up for them. Walls and “common migratory policies” are not viable solutions. East and South East Asia have shown economic growth, and opportunity is the only solution.

Al Gore already identified Climate Change as an existential threat in 2006. Since then, it has gotten even more existential. Global temperature, glacier size, storm counts, or almost any other metric shows this. Weather patterns are changing fast, and they could bring untold economic hardship. COVID brought out another Inconvenient Truth. We can stop it, and the world as we know it won’t collapse. We can live with less travel and less pollution if we need to. Let’s do it for our children. We are setting them up for the equivalent of a decades-long pandemic.

Democracy, in its current form, has had an incredible run. The principles of our democratic systems would be recognizable to classical Athenians, and the US founding fathers would be surprised at how little the system has evolved. Age is showing. It is vulnerable to digital monopolies, social media hacking, cyber attacks, and much worse. We need to move to Cloud Democracy. If not, we will face a false dichotomy between Chinese-style authoritarianism or a failing crippled system. The US elections have shown us both the potential of moving the system forward and the perils of not doing so.

Five technology revolutions ready for prime time: Biotech, AI, Electric Mobility, Integrated Reality, and Digital Governance.

COVID has also shown us that we have an embarrassment of riches in the new technologies that are getting ready for prime time. Cloud is already in deployment, and it is a crucial enabler of everything else. At the same time, there is much more coming, and it has the potential of changing our world radically for the better. COVID has allowed us to get some glimpses of this:

  • Biotech has shown how cloud bioscience can move at a different speed if we are willing to allow it. Tens of effective vaccines in less than a year, remote healthcare, and instant sharing of COVID data have shown us.
  • AI has had another impressive year of step by step process into areas that seemed beyond reach. Two examples for the year are Alpha-fold’s protein folding and the new biggest model GPT3, with more than 170 billion parameters, that can write as effectively as most humans.
  • Electric Mobility is experiencing a golden age with Tesla and many other EV makers booming in the stock market and showing they can deliver as batteries and productive processes improve. The last 5% of autonomous driving seems harder to crack, but there is a lot to be improved with what we have.
  • Integrated Reality, being able to marry physical and digital reality, has played a central role in COVID. First, digitally tracking the real world through IoT, smartphones, and cameras have allowed Asian countries to contact trace COVID effectively. Second, virtual meetings have replaced physical ones enabling knowledge workers to carry on. Third, Facebook has continued developing viable VR with Oculus Quest 2, which is still not there but is close to being an iPhone moment device.
  • Digital Governance has mostly returned to the collective consciousness through the latest Bitcoin boom (remember 2017?). However, the rise of DeFi is much more central, with more than $14B already locked in lending and derivative contracts through cryptocurrencies, an x15 increase from 2019.