So far in this series, we’ve frequently reiterated that the theme of disruptive innovation has reached an inflection point in time, where it is not only becoming more impactful, but it is also accelerating. That being the case, as long-term investors accessing this trend we need to have an acute understanding of what is causing this acceleration to happen.

We saw last week what the consequences are of getting it wrong – as American retailer J.C. Penney became the latest in a long-list of industry incumbents to file for bankruptcy. Corporate history is littered with infamous examples of companies that failed to recognise disruptive innovations within their respective markets, ultimately to their demise. But these disruptive forces did not come out of the blue – the key failing of the businesses that ran afoul of them was that they failed to recognise extent to which they would take hold, and the speed with which they would do so.

Technology leads the charge

The primary driver of the acceleration in disruptive innovation is technology, and it is a force that is only becoming more pervasive in its impact. It took the landline telephone 75 years to hit 50 million users; and 62 years for cars, 46 years for light bulbs and 22 years for television to hit that same milestone. In comparison, YouTube, Facebook and Twitter hit that 50 million user mark in four, three and two years, respectively.

Ultimately, technology is spreading faster than ever before and this in turn is having a more profound impact on economies and business models. As Mark Zuckerberg, the co-founder and CEO of Facebook, highlighted recently, two-thirds of the objects and products consumed on a daily basis today did not even exist twenty years ago.

Whilst technology is the main driving force behind the acceleration in disruptive innovation, there are three distinct themes within this that we should seek to explore. Let’s break each of these down in a bit more detail. 

The increasing accessibility of the Internet

Few technologies have resulted in such widespread social and economic change as the Internet. The online population has grown nearly 900% from 400 million users in 2000 to almost 4 billion today (equating to approximately 50% of the global population), creating an unprecedented impact on economies and societies around the globe.

The impact that the Internet has had on society is transformative, and continues to evolve along with our use of it. The internet is no longer just the home of email, static webpages, and discussion boards. Today’s Internet is much more, providing companies with immediate access to a larger pool of potential consumers, partners and suppliers, while providing consumers with a greater variety of products and services, as well as more information.

The Confluence of Technology

There are now a number of emerging technologies that are leveraging the crucial foundations laid by the Internet. At the forefront of these are cloud computing and artificial intelligence.

Cloud computing has democratised certain parts of technological infrastructure, by significantly reducing the cost and improving the accessibility of tools such as storage, data analytics, security and networking. In 2015, 90% of the digital data in existence had been created in the previous two years. That pool of information is growing exponentially as more of the world is digitalised, which is in turn now accessible to programmers, researchers and organisations at a very low cost.

Simultaneously, artificial intelligence has rapidly become a transformative technological force and a mission critical tool for organisations, with the potential to provide insight, fuel innovation and reshape our thinking and processes whilst breaking down one of the most persistent limiting factors in the innovation process; humans.

The convergence of both cloud computing and artificial intelligence, paired with their increasingly attractive economics makes them applicable to a broader set of users across industries, which could in turn lead to an accelerating and broadening disruption of more industries.

Changing Demographics

Finally, we have the increasing ability and willingness of younger demographics to adopt these technologies. According to the United Nations, in 2019 approximately 63% of the world’s population was classified as either a millennial or a member of Generation Z. As this cohort of the population grow older and accrue more spending power, they are likely to spend more on technology and use technology in a different way.

The average millennial checks their smartphone 150 times per day and more than 60% of teenagers check their smartphone within 5 minutes of waking up. Perhaps more surprisingly, more than 60% of teenagers wake up to check their smartphone during the night. And alarmingly, when asked “would you rather lose your smartphone or your sense of smell”, millennials overwhelming chose the latter. Through technology, younger generations will likely lead different lives in the future and their interaction with companies offering them almost any type of product and service is likely to reflect that.

Disruptive innovation thrives under these conditions

The current innovation cycle is unlike any other that has come before it. In contrast to the industrial revolution, for example, whose direct repercussions mainly concerned production methods, the current revolution is also influencing living and consumption habits. Some of the most recent, major innovations, such as the Internet, cloud computing, artificial intelligence are powering associated technologies including the internet of things, electric and smart vehicles, genetic sequencing and 3D printing, which have thrived with unprecedented speed and profoundly changed the way we live, consume and work.

Consequently, we believe that this innovation cycle will be more pervasive in its impact than anything we have seen before. This presents investors with a number of compelling opportunities, but it also creates a considerable amount of risk. As responsible and sustainable investors, at EdenTree Investment Management, our role is to understand these structural forces and identify them within the industries that we allocate capital to.

The next instalment of Tom’s Disruptive Innovation series will be published next week, looking at some of effects within specific industries that disruptive innovation is beginning to have. 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.