Overview
The industrial revolution wrought massive changes in lifestyle, fortunes, and futures, forever changing society. We are on the verge of another revolution which is likely to similarly have massive global impact.
The Premise
As mentioned in our prior Risk Commentary, “machines” have evolved to the point that they are now able to beat the very best humans in the games of “Go” and “Chess.” While this is impressive, our view is that the improvement will continue and broaden such that the difference in skill level between machines and humans will be massive. On the broadening front, we expect the areas where machines are superior to humans will expand such that using the current approaches becomes nostalgic, but uneconomical.
For example, broadly-purposed robots can replace humans in many areas of auto manufacturing. Assuming the typical auto worker is paid $28 per hour[1], translating into a fully loaded cost of approximately $40 per hour, the annual cost for 3 shifts is in the area of $192K per annum. (i.e., $40 per hour x 24 hours x 200 working days). Assuming that a robot costs $100K, is useful for 5 years, and needs $20K in maintenance and electricity costs, the annual costs is approximately $40K. Hence, for one workstation, the robot-based business has a $150k+ advantage. However, assuming the robot has typical controls, the quality of output is likely to be higher and over time, the quantity greater. Extending this analysis over the range of stations in the typical factory, and it becomes apparent that a new age is dawning.
The Winners and Losers
Einstein stated that he stood on the shoulders of giants, meaning the advances he made we in part due to the contribution of others. As an analogy, England’s industrial revolution, was built on advances in a variety of areas such as improvements in the steam engines, the railroad, textile processing, electricity, etc. Similarly, the pending revolution is being built on advances in the areas of computing, energy creation and storage, communications, and processing. Lest we forget, Nvidia’s latest chips are 1 million times faster than they were 10 years ago, SpaceX has reduced the cost of launching satellites by a factor of 10 (see below), batteries are expected to last 1 million miles[2], and AI has enabled vehicle self-driving to be safer than human driving, and humanoid robots can now easily sort and handle eggs[3].
Answering the question of which industries will be winners and which the losers, our view is that there are a few variables that are probably needed:
Existing Platform or Rapid Acceptance – simply having a better tool is not adequate for success. Ideally, a company should already have customer acceptance and can build on that with the typical “better, faster, cheaper” approach. At the top of this installment is a photo of an Amazon warehouse robot for good reason. Amazon has a well-established position in both retailing and technology with its base distribution business and AWS unit. Its use of factory robots and over time, delivery robots is likely to place it at a significant competitive advantage.
Technology and Market Knowledge – a deep understanding of the uses of new technologies, particularly in applying such for the benefit of customers. Apple was not the first MP3 product nor the first cell phone firm, but it did understand how to ease customer acceptance and usage and to date, dominates the personal communications market.
Market Opening – typically, to offer a broadly accepted product, a firm needs to serve a nascent, or under-served market. Nearly all the stupendous seven were relatively early in identifying and dominating relatively green areas.
Acceptable Price – while producing a superior product is helpful, one also has to win the consumer battle on a regular basis as consumers are constantly comparing offers versus alternatives.
Perhaps in future installments we will become more granular about the winners and losers in various industries.
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[1] https://www.usatoday.com/story/money/cars/2023/10/14/how-much-uaw-workers-earn-comparison/71159764007/
[2] https://www.youtube.com/watch?v=-OYJjnw1TDI
[3] https://www.youtube.com/watch?v=cpraXaw7dyc