Atoms, After Bits

Is the information technology party over?  Reading daily about the industry’s general malaise – the pulled IPOs, the bad executive behavior, etc.  – you might feel like examining your mutual funds or calling your brokers to rebalance your portfolio.

 While some commentators act like the party just got started, traditional IT is in fact more of a Boomer and less of a Millennial. Fifty-five years ago, IBM introduced the System 360, a commercially successful general-purpose mainframe that launched the juggernaut of information technology (IT) economy. Since then, tens of trillions (in today’s) dollars have been invested in tech. In 2019, the annual global spend on IT will be $3.8 trillion according to analyst Gartner. In comparison, World War II cost $4.2 trillion in today’s dollars according to the Congressional Budget Office.

 It’s time to admit that traditional IT is a mature sector of the economy. Tech’s top line is anemic: only 1.1% annual growth rate in 2019 – less than inflation.  The era of building things including physical networks, data centers, and computing devices to create bits (information including software and digital media) has entered late middle age.  The fierce land grabs of the computing era now resemble long, grinding trench warfare among incumbents or newer platforms raiding existing budgets rather than creating new ones.

 If creating information is a big market, creating real stuff is a really big market.  The goods and services sectors represent over $50 trillion of annual GDP– think agriculture, manufacturing, energy, health care, etc. – and have not experienced a technology revolution of the same magnitude. So why is roughly two-thirds of venture investment still focused on Internet, telecommunications, computing hardware, and software opportunities?

After all this time and treasure spent on turning atoms into bits, perhaps it’s time to ask: can we use bits to create better atoms?

 Today the massive computational power created by the cloud and machine learning is helping screen for cancer earlier and faster than traditional testing methods. Robots and software-driven sensors are the new soldiers detecting lethal weapons and bombs to help reduce violence and terrorism in our society. 

 These scientific advances are being built on the back of information technology. Think about this as “deep tech,” a wave of technology combining advances in science with information technology. This is amazing news for investors and entrepreneurs. The fourth industrial revolution will occur within industries not associated with the digital era.

 Why now?  

 Population growth and expanding global consumerism are catalyzing a new reality: the current approach to creating goods and services are environmentally unsustainable and favor smaller, total addressable market segments. Talk about your market expansion opportunity: we must solve basic needs – food, shelter, health and safety -- for the pending arrival of billions of new inhabitants of planet Earth. The upsell is uplifting the lives of billion out of poverty and helping them consume what most investors take for granted.

 The economic revolution in atoms is the greatest business opportunity of our lifetime. We need to unleash capitalism not just regulation at climate change. It’s time to re-write classical economics: bits are a factor of production.

 In IT we often talk about disruption. While many bricks and mortar industries have modernized due to globalization -- to paraphrase Tom Friedman, as the world flattened -- their factors of production have not changed in decades, even centuries.  Chemical fertilizer, a backbone of modern agriculture that helps feed billions of people, produces nitrogen from the same Haber Bosch process invented over 100 years ago, and, sadly, is a major contributor to greenhouse gases and dead spots in our coastal waters.  Solar panels are updated versions of silicon-based photovoltaic cells invented by Bell Labs in the 1950s to power satellites. This represents raging incrementalism, not creative destruction.

 What is wildly different today is that entrepreneurs are pursuing markets that were once the province of only the largest global industrial companies. Venture-backed companies are chasing environmentally sustainable alpha by confidentially going eye-to-eye with global industrial giants in their core businesses, just as plucky whippersnappers like Intel and Microsoft took on IBM in the 1980s and 1990s.

For someone who has built several companies and dozens of products based on bits, I could not be more excited to now be working in atoms, looking for the GE of deep tech. To my colleagues, I say: “hey Boomer."