Buckle up for a technology-driven ride

4 August 2020

1. Developments in 5G technology will spur growth in IOT due to enhanced internet connectivity via larger bandwidth and better network performance. It will be especially beneficial to wide-area IOT networks that extend over large geographical areas as their main bottleneck previously was the inability to transmit large volume of data over distances efficiently.

2. Sensor technology that is embedded in IOT devices to collect data will continue to become more sophisticated and cost efficient.

3. Computing power has increased a hundredfold in the past 15 years. Thi

Revenue pools for device-enablement platforms for IOT and IT, 2014-2023

Source: McKinsey & Company, May 2020

Covid-19 has caused a leap forward in the digital revolution

The Covid-19 pandemic has necessitated social distancing and the formation of new habits. It has also brought about a level of digitization globally that would otherwise have only been achieved in the next 10 or 20 years. In a recent interview with Business Insider, Shopify’s CEO commented on the magnitude of this acceleration by suggesting that “the future we imagined for 2030 has been pulled forward to the present”. We all knew the digital revolution was coming: Covid-19 simply brought it forward. Internet companies are among the key players poised to benefit from this shift.

The switch to online retail has been accelerated by the pandemic as individuals reduce their visits to brick-and-mortar stores to minimise risk of exposure to the virus. Recent US aggregated credit and debit card data also suggested that e-commerce penetration increased to a peak of 35% during the last week of April, up from only 15% at the beginning of the year. This acceleration can also be seen very distinctly in the UK, with internet sales surging in the month of March 2020.

We believe the pandemic could change the way consumers buy goods online over the longer term. Specifically, we could see higher penetration in demographics that were previously less comfortable purchasing online and in certain product categories that have historically had lower penetration such as groceries, home personal care and consumer package goods. For example, Amazon’s recent announcements that it plans to hire about 100,000 personnel and prioritise medical supplies and household staples clearly points to positive demand indicators for its rising online grocery business.

Furthermore, as e-commerce platforms grow, companies can tap on the network effect for further monetisation opportunities. Alibaba becoming a key mobile payments provider and Amazon creating its own music offerings are testament to this.

The rise of new social media platforms such as TikTok and the increased consumption of digital media sources during the pandemic will likely propel advertisers to shift their budgets to focus on more digital advertisements.

Digital ad spend is set to grow in 2020

Source: JPMorgan, eMarketer, October 2019

Finally, Covid-19 will speed up the adoption of IOT on a personal and institutional level, in our view. To contain the outbreak, governments would ideally want to be able to collect individual health data in real time, process the data and act on it as soon as possible—something that IOT seems suited for. Work has already started: Singapore is developing a wearable device for every citizen for contact tracing and researchers globally are looking into modifying wearables (e.g. Fitbit or Apple Watch) to detect Covid-19 symptoms before they show up.

Are you on board?

The Covid-19 pandemic could have a lasting impact on the way we live and interact. In this new normal, some businesses are likely to benefit while others could quickly become irrelevant. With the acceleration in the digital revolution, e-commerce, social media, search engine and IOT companies will be at the forefront of this growth. Global internet companies are set for a quantum leap into the future, and we think it is time to buckle up for the ride.

1 Source: https://www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/growing-opportunities-in-the-internet-of-things


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