Times are indeed changing as in Bob Dylan’s famous song, The times, they are a changing. Despite the overall bear market in 2015, high tech virtual companies grew at rates much faster than the more traditional companies of yesteryears as illustrated by the top 10 most valuable companies in the US (accompanying chart). Two things stand out immediately:
Second, all 5 virtual companies exhibit significant growth since 2000 – certainly by comparison to the other 5. ExxonMobil, once the most-valuable US company, is now in the 4th position. Once mighty GE is 6th—it is the only company still on the 30 companies listed in the Dow Jones Industrial index since it started. Exxon has barely grown in market value in 5 years, understandable given the decline in oil prices.
“US technology shares scaled fresh heights …, fueled by upbeat earnings that renewed investors‘ faith that the giants are solidifying their dominant positions at the center of the Internet economy despite a raft of upstarts.”
The WSJ article said,
“Investors added about $90 billion to the combined market value of Amazon,… Alphabet & Microsoft”
“Gains in the five top tech firms (at the time of the article) account for 15% of the rise in the broad S&P 500 index this (Oct 2015) month.”
The emergence and rapid growth of the new tech titans suggests another structural change taking place not just in the US but across the globe, namely the rise of much heralded information economy popularized by the likes of Alvin Toffler‘s The Third Wave published in 1980.
Long before the rapid penetration of the Internet and wireless communication revolution, Toffler predicted that humanity is entering a third phase of development with implications far more profound than the prior two: the dawn of domestication and agriculture followed by the industrial revolution. Recent developments, including the rise of the hi-tech titans, prove that Toffler‘s vision was spot on.
Manufacturing giants, multinational conglomerates, major energy companies, global banks and investment companies are still big, profitable and important. But those that gather, manage, control and manipulate information are apparently even more so. And this is beginning to dawn on the traditional firms that what increasingly matters is not the nuts and bolts or the gadgets but who is managing the information that runs the devices, the gadgets and the machines. Commodities and energy still matter, but perhaps not as much as they did, especially if future demand is less robust than previously assumed.
Take, for example, car manufacturing. Traditional car giants like Daimler Benz, GM and Toyota have belatedly discovered that manufacturing cars, as important as it is, will not be the most profitable part of the business. As future ―cars‖ become software-defined and increasingly software driven, companies that deliver data, manage information, and control devices stand to gain dominance and advantage. Manufacturing the bodies and assembling the pieces will become low-margin chores. Consider the following:
Kessler asks,
“Now what? We‘re 16 years into the 21st century without any clear map of the world ahead”
suggests plenty of room at the bottom.
As for Kessler‘s ―Now what?‖ the answer is that Feynman, like Toffler and countless others attempting to predict the future or the next wave, was simply ahead of his time.
What are the implications of the information technology revolution for the energy sector? The most important may be that advanced economies of the world will increasingly grow not so much by the growth of their traditional manufacturing and energy-intensive sector but rather by the innovations of their information sector. Obvious, you might say?
This may also suggest that, while manufacturing will remain critical, the
service sector, especially the information sector, will become the engine of growth and prosperity for the future.
The information sector uses lots of energy, electricity in particular, but produces disproportional wealth per unit of energy compared to traditional energy-intensive industries of the past.
These trends, more than many realize, explain why advanced economies of the future will be able to sustain reasonable economic growth and prosperity while using ever smaller amounts of energy in aggregate.
Countries like Saudi Arabia, who are totally dependent on exporting oil, according to this line of reasoning, are in for rough times. Others like Australia, who have historically generated tremendous wealth by simply digging stuff out of the ground and loading it into ships destined for China, will also have to make adjustments. Ditto for province of Alberta in Canada, and countless others.
Add increased pressures to cut carbon from fossil fuels, and eventually fossil fuels themselves, and one can clearly see the writing on the wall.
Perry Sioshansi is president of Menlo Energy Economics, a consultancy based in San Francisco, CA and editor/publisher of EEnergy Informer, a monthly newsletter with international circulation. He can be reached at fpsioshansi@aol.com
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