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By Thomas Fitzgerald, co-manager of the Amity International Fund. Tom can be found tweeting under the handle @TSFitzgerald

We need to pay attention to disruptive innovation gathering pace in the pandemic

Thomas Fitzgerald Thomas Fitzgerald Fund Manager
Opinion

We need to pay attention to disruptive innovation gathering pace in the pandemic

Thomas Fitzgerald

Thomas Fitzgerald
Fund Manager

Disruptive innovation accelerates at times of crisis

Our already fast changing world has been further and irrevocably altered by the current COVID-19 global health pandemic. The crisis has faced us with unprecedented challenges, and the nature of these and how we respond to them will likely alter the very fabric of our economy and society.

Undoubtedly, the proliferation of technology is helping us all to respond to these challenges, and at the same time driving deep rooted structural change throughout traditional business models and industries as they seek to adapt to a world of lockdown, including working from home and social distancing measures that will likely be in place for some time yet.

History tells us that in times of crisis, disruptive innovation gains pace as the traditional world order is up-ended, allowing these disruptors to break through; we believe the COVID-19 pandemic is another such inflection point. 

We were already seeing this as a long term investment theme over the next ten years; innovative technology-based businesses playing a role in helping to solve some of the world’s most serious problems. But we now believe that the turbulence caused by COVID-19 is accelerating this trend of ‘disruptive innovation’.

If we look back to the Global Financial Crisis as a recent example; innovation gained more traction than many had anticipated. As technology budgets were reduced significantly amid the crisis, with enterprise I.T. spend falling by approximately 5.5% in 2009, those companies providing faster, more cost effective and creative products and services gained significant share.

Software and online retail companies were notable beneficiaries. Salesforce, the cloud-powered enterprise software leader delivered organic revenue growth of more than 20% over the course of its fiscal year 2009. Similarly, in the same year, while retail sales globally fell, online retail giant Amazon delivered top-line growth of almost 28%. And as global advertising budgets shrank by 10% year-over-year, Google (now a subsidiary of Alphabet) produced annual revenue growth of almost 10%.

Innovators are now enabling huge societal change

Now, the COVID-19 crisis has triggered the largest work-from-home experiment in human history. Technology companies, universities, financial institutions and governments are sending employees and students home to work or study remotely in order to prevent infections of the virus.

Working and studying from home requires technology that functions ubiquitously, from any location and enables collaboration among peers. Companies such as Salesforce, Microsoft and Cisco Systems have been promoting cloud software and digital networking tools for more than a decade, and now, almost overnight, these have transitioned from nice-to-have work benefit to a mission-critical tool.

We also believe that consumer adoption of contactless payment and digital wallet services such as PayPal will accelerate, as businesses and governments are now promoting cashless payments to combat COVID-19. Cash notes have the potential to be “super spreaders”, as COVID-19 lives longer on objects than on human hands because enzymes in human sweat break down the virus more quickly.

History tells us that in times of crisis, disruptive innovation gains pace as the traditional world order is up-ended, allowing these disruptors to break through; we believe the COVID-19 pandemic is another such inflection point.   

Additionally, as the home has now become the central hub of activity, we expect that consumers will boost their spending on digital entertainment services such as video streaming and gaming, as well as on-line education and online retail services.

Recent data that highlights this trend includes Steam, the social gaming platform, which reported that it had broken another record for the peak number of players on 21st March (22 million, after the 21 million the day before, and after the 20 million it set the weekend prior). Meanwhile, according to US telecom operator Verizon Communications, internet traffic in the US derived from video game usage has climbed by approximately 75% in recent weeks.

Why we need to know about disruptive innovation

As is typical during periods of crisis, consumers and businesses are willing to re-think the ways in which they operate and behave. As these entities search for more cost effective and creative ways to work, communicate and entertain, we believe that disruptive technologies will resonate with users, gain commercial traction and ultimately consume significant market share.

The concept of ‘disruptive innovation’ will be the driving force behind much of this change, and that is why it is our focus for this new blog series. We need to understand what disruptive innovation is and why it matters, and how it will change the businesses that we invest in. A failure to do so, as we will see a little later, can have dire consequences for businesses and investors. Along the way, we aim to demonstrate how we are positioning the Amity International Fund to access this trend, and generate long-term sustainable returns for our investors.

The next instalment of Tom’s Disruptive Innovation series will be published next week, looking more in depth at the long term trend and why it matters to investors. Check back on our Insights Hub to continue reading, or follow us on Twitter at @EdenTreeIM or search for us on LinkedIn so that you can get updates on new posts.