Future Big Arenas of Competition – Asrar Qureshi’s Blog Post #1043

Future Big Arenas of Competition – Asrar Qureshi’s Blog Post #1043

Dear Colleagues! This is Asrar Qureshi’s Blog Post #1043 for Pharma Veterans. Pharma Veterans Blogs are published by Asrar Qureshi on its dedicated site https://pharmaveterans.com. Please email to pharmaveterans2017@gmail.com for publishing our contributions here.

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This blogpost is based on a survey report of MGI – Mckinsey Global Institute. Owing to the enormity of subject, it will take more than one blog post. Link at the end.

Preamble

The MGI survey identified 12 arenas from 2005 to 2020, in which certain companies grew much bigger than others. Based on this learning; they also identified 18 arenas of today which possibly would shape the global economy, generating $29 trillion to $48 trillion in revenue by 2040. I presented 12 previous arenas in the last blogpost. I shall now discuss the 18 future arenas.

[Quote] We use our understanding of the arenas of today as a lens for exploring 18 potential arenas of tomorrow. We describe signs that the three elements of arena creation may be emerging, marking these potential future arenas’ development. Together, these potential future arenas could generate $29 trillion to $48 trillion in revenues by 2040. Assuming they have profit margins after taxes that are typical of similar industries today, they could generate $2 trillion to $6 trillion in profit by 2040. Their collective global GDP share could increase from 4 percent today to 10 to 16 percent by 2040. [Unquote]

18 Future Big Arenas

E-commerce

E-commerce industry consists of companies that sell goods to consumers through digital channels. This industry is already well established across a range of products. The goods may be delivered from the manufacturers directly to consumers, or these may be sold through platforms like Amazon and Alibaba, or these may be sold through third party retailers/ merchants, or the stores may sell in-store and online. 

E-commerce as an industry has two main segments: retail e-commerce and food e-commerce. Together, the revenues of the two segments reached about $4 trillion in 2022. This could grow to between $14 trillion and $20 trillion, at a CAGR (Compounded Annual Growth Rate) of 7 to 9 percent.

The retail e-commerce currently accounts for 20% ($3.4 trillion in value) of global retail revenues (both offline and online); this share could reach 27 to 38 percent by 2040, translating into $11 trillion to $16 trillion. Food e-commerce currently stands at 4% of global retail revenues at $630 billion. This could grow to $3 trillion to $4 trillion; 7 to 9 percent of global retail revenues.

AI Software and Services

Some types of AI, such as machine learning has been around for decades and primarily used for numerical techniques-based applications; others are newer, though built on previous technologies. The most exciting currently is generative AI (gen AI) which uses unstructured inputs, such as prompts in a natural language like English, to generate more or less structured output.

Gen AI became headlines in late 2022 when OpenAI released ChatGPT, a service that responds to users’ question and instructions with remarkably humanlike written answers. Since then, it has excited the markets and attracted investment. Equity investment in this technology jumped from $5 billion in 2022 to $36 billion in 2023. By early 2024, ChatGPT had more web traffic than such giants as Netflix, Pinterest, and Twitch.

Developments in analytical AI and gen AI are expected to drive the industry’s growth by improving business and worker productivity. In the modeled scenarios, the arena’s revenues grow from $85 billion in 2022 to $1.5 trillion in 2040, and maybe up to $4.6 trillion, a CAGR of 17 to 25 percent. 

The second component is the economic value added by gen AI. About $2.6 trillion to $4.4 trillion of that annual value would come from AI enterprise use cases, and about 75 percent would be from four areas: customer operations, marketing and sales, software engineering, and R&D. Yet another area of use is productivity gains of knowledge workers, which could unlock a total of $6.1 trillion to $7.9 trillion of value annually. 

Adding these components together, the estimated range of total economic potential comes to $15.5 trillion to $22.9 trillion annually by 2040.

Cloud Services

Cloud services providers offer IT services over the internet, including on-demand IT infrastructure and platforms as a service. Cloud services are historically divided into three segments: infrastructure as a service (IaaS), platform as a service (PaaS), and software as a service (SaaS). IaaS offers computing and storage resources over the internet, PaaS offers platform services that allow users to develop apps that can put those resources to use, and SaaS consists of software provided over the internet.

A survey estimates that around 94 percent of enterprises use cloud services. As a result, industry revenues have grown sharply – from #32 billion in 2017 to $270 billion in 2023.

Global external IT spending was about $3 trillion in 2022 and is expected to grow to $8 trillion in 2040, a 6 percent CAGR. These outlays are distributed across key areas, such as hosting, network, cybersecurity, and application development and support. The cloud services industry’s 2022 revenues accounted for 8 percent of global external IT spending. The industry could represent between 19 and 41 percent of that spending by 2040. In the analysis of today’s cloud arena, the industry’s revenues grew at 17 percent CAGR from 2005 to 2020.

The cloud service industry has few major players; its four largest companies account for about 60 percent of total revenues. In 2023, Amazon Web Services (AWS) took in 31 percent, Microsoft 20 percent, Google 7 percent and Alibaba 3 percent. The three companies with the highest share – Amazon, Microsoft, and Google – invested more than $380 billion over a period of five years. In the long term, the industry may continue to have just a few players due to its escalatory dynamics and global radius of competition.

Sum Up

The discussion on 18 new arenas continues. The purpose of this discussion is to impress upon businesses where to invest and for people which skills they should learn to stay relevant and grow.

The question often raised is that these are applicable to developed countries and are not applicable here is redundant. As is said, nothing can stop the idea whose time has come. These changes shall affect the whole world because the world is more connected now than it has ever been.

Concluded.

Disclaimers: Pictures in these blogs are taken from free resources at Pexels, Pixabay, Unsplash, and Google. Credit is given where available. If a copyright claim is lodged, we shall remove the picture with appropriate regrets.

For most blogs, I research from several sources which are open to public. Their links are mentioned under references. There is no intent to infringe upon anyone’s copyrights. If, however, it happens unintentionally, I offer my sincere regrets.

Reference:

https://www.mckinsey.com/~/media/mckinsey/mckinsey%20global%20institute/our%20research/the%20next%20big%20arenas%20of%20competition/the-next-big-arenas-of-competition_final.pdf 

https://www.mckinsey.com/mgi/our-research/the-next-big-arenas-of-competition 

https://www.mckinsey.com/about-us/new-at-mckinsey-blog/the-wizardry-behind-18-hyper-growth-industries?stcr=0414B29EA4DA45D594CC8374A2E646E0&cid=other-eml-alt-mip-mck&hlkid=495f312c5fa5451b90aecbe5c9155fcf&hctky=15999472&hdpid=08c2061a-46ab-4317-97d4-79df8e810fdb