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The world’s largest automaker in December dodged much of the fanfare surrounding recent EV rollouts from U.S. brands, while quietly ratcheting up its already massive commitment to transformation. Germany’s Volkswagen (VWAGY) accelerated plans to replace legacy technologies — from gas-fired engines to production methods and other operations — with digitally based products and systems. The strategy, to become a software development powerhouse, is part of a global digital business migration that many are calling the Fourth Industrial Revolution.
The Wolfsburg-based automaker’s new, five-year spending plan hoisted its investment in battery electric vehicles to $100 billion through 2026. That’s an $18 billion increase over its prior plan, and centers on electrification, digitization, robotic production and mobility services. Specifically, 19% of Volkswagen’s outlays focus on software development — and the operating systems for electrical vehicles.
“The real disruption is still coming,” Volkswagen CEO Ralf Brandstatter told the U.K.’s Autocar trade publication in May. “If you believe with electric cars alone we’ve arrived in the future already, you’re wrong. Digitalization is the key. The car is now a software-driven product.”
Volkswagen’s spending program compares with General Motors’ $35 billion BEV commitment, and to a $30 billion EV spending plan from Ford, both through 2025.
Zero Immunity To Transformation
This vast remaking of the century-old global auto industry has become one of the most highly visible elements in a shift taking place among businesses of all types. The migration is to digital, software-based frameworks on which rest operations, product design, manufacturing, human resources and all other aspects of the business world. It is collectively referred to as the Fourth Industrial Revolution.
Industries undergoing such transitions range from retail and wireless telecom to entertainment, transportation, energy production and even space travel. All are seeing traditional modes of business disrupted by digital processes.
Furthermore, the coronavirus pandemic, rather than upending this transition, seems to have accelerated it. And as the global economy ventures into 2022, investors have their eyes peeled for which industries might next be ripe for transition.
“There isn’t an industry that’s immune,” said Shaun Andrews, chief marketing officer at enterprise technology company Lumen (LUMN) in an email response to IBD. “And if they think they are, they will get disrupted pretty fast.”‘
Across The Metaverse
Volkswagen’s spending is an attempt to keep ahead of such Fourth Industrial Revolution disruptions.
So is Microsoft‘s (MSFT) proposed $68.7 billion acquisition of Activision-Blizzard (ATVI), a video game publisher that specializes in developing virtual realities. Such realities are collectively coming to be known as the metaverse. The metaverse is a multidimensional disrupter of the current, essentially two-dimensional internet world.
The Microsoft/Activision news came on the heels of Facebook’s conversion to Meta Platforms (FB), executed in December. In its early stages, Facebook commanded a leading role in the Fourth Industrial Revolution’s disruption to how individuals relate, communicate and organize. Consequently, the tech giant is attempting to unfold that disruption into the metaverse and its added dimensions, heaping revolution upon revolution.
“It’s a fusion of technologies,” said Landry Signe, professor and founding co-director of the Fourth Industrial Revolution and Globalization 4.0 Initiative at Arizona State University. “The Fourth Industrial Revolution blurs the line between the physical, the digital and the biological, and is changing the way we live, work and communicate,” Signe said in an interview with IBD.
The metaverse is a prime example of that, Signe says. It spins together a series of a new realms spun from interconnected virtual experiences: virtual and augmented reality, shaped using artificial intelligence and machine learning, as well as hosts of new sensor and graphics technologies.
Meta Platforms CEO and founder Mark Zuckerberg had his eye on the metaverse in its early stages. Facebook paid $2 billion to acquire virtual-reality pioneer Oculus in 2014. That led to Oculus VR headsets and AR glasses. The idea was that people could meet in a shared 3D virtual environment to conduct business, play games and engage in other activities.
Layering New Technologies
Zuckerburg provided some visual examples of how metaverse interactions might work during the October announcement of the company’s name change. Those quick glimpses make it easier to imagine virtual concerts and online travel on a grand scale.
Examples of early adopters include companies such as Chipotle Mexican Grill (CMG) and Verizon Communications (VZ), which earlier this year built their own digital worlds on metaverse-like platforms. While the technology is complex, the aim is simple: to improve brand recognition and get existing customers more engaged.
Snap (SNAP), parent of social media site Snapchat, took an early position as a lead innovator in the cutting-edge field of augmented reality. This technology overlays digital images and other information into a person’s field of view. Most consumers are familiar with its first iterations, as a novelty app used primarily as communication and entertainment.
However, the technology has since evolved into the fields of navigation, education, games, commerce and more. Furthermore, the good news for Snap is that not only is augmented reality entertaining, it’s also a revenue driver. Snap recently introduced an augmented-reality feature it calls “TrueSize,” which consumers can use as a shopping experience.
Clothing company FarFetch(FTCH), for example, uses Snap’s AR technology in a way that consumers can virtually try on and buy a variety of jackets. Nike(NKE) has integrated the Snapchat offering as part of its “Play New” advertising campaign.
Stages Of Industrial Revolution
Signe also says the Fourth Industrial Revolution Industry will have a profound impact that will lead to “incredible growth and productivity gains across many industry sectors.”
There are times when technology changes how and where people live and their relationships to one another, and when it upends economies and reshapes production. Such periods, he says, merit the term “revolution” because they change everything. In just one example, societies will face a massive shift in labor markets as automation takes on an increasing role.
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More than 200 years ago, the First Industrial Revolution caused massive changes in populations and landscapes. Steam and hydro energy transformed spinning, weaving and other textile manufacturing processes into global manufacturing trades. It transformed landscapes, city skylines and patterns of families and work that had existed for many generations.
Electrical power and petroleum fueled the Second Industrial Revolution, from the late 1800s to World War II. This added automobiles, aircraft, plastics manufacturing and layers of communications.
The third stage of the revolution came as semiconductors channeled electrical power into receding microscopic realms. Those chips went to work to power space flight, supercharge computers and make countless everyday items smarter and more affordable. They also enabled the data processing that automated production and spawned the digital age, setting the stage for the internet.
The AI/Machine Learning Supercharger
The technologies of the Fourth Industrial Revolution began to emerge through the late 1980s and 1990s, as internet-linked computers put in motion trends in remote workforces and digitized record keeping. Those trends and others accelerated after the turn of the century, with the massive growth of digitization and the refinement of artificial intelligence. Smartphones arrived, followed by digital personal assistants. Then came the Internet of Things, a term for electronic devices that are loomed together and communicate via wireless networks in homes, campuses, factories or workplaces.
That gave greater opportunities for automation and remote control, sparking the proliferation of robotics, drones, 3D printing, cloud computing, edge computing, 5G wireless, blockchain technology and more.
At the heart of the expanding revolution is this: Almost everything imaginable is being digitized. The data created by digitalization cycles continually through an expanding loop of artificial intelligence. That cycle is endlessly advanced through machine learning. The collection, distribution and analysis of that constantly improving data is supercharging decision-making processes in many industries.
The result of those processes is the fuel bringing vast improvements to how Fourth Industrial Revolution companies operate.
“This is an enormous leap from the Third Industrial Revolution,” said Sef Tuma, who leads Engineering and Manufacturing at Accenture Industry X, which helps businesses make the transition to the Fourth Industrial Revolution. “Software changes the whole DNA of any company.”
A good example of technology made possible through the Fourth Industrial Revolution, he said, is the creation of “digital twins.”
The Rise Of Digital Twins
A digital twin is a virtual model designed to accurately reflect a physical object.
For example, a wind turbine outfitted with various sensors can collect data about different aspects of the turbine’s performance. This could include energy output, temperature, weather conditions and more. This data is then relayed to a digital copy of the turbine. With that data in hand, product designers can run simulations, study performance issues and generate possible improvements. Those improvements then guide modifications made to the original physical object.
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NASA pioneered the use of twinning technology during its space exploration missions of the 1960s. The technology provided each voyaging spacecraft with an exact replica — an earthbound version — used for study and simulation purposes. Technological advances moved the model side of the equation to digital, virtual reality.
Unity Software, for example, provides the 3D architecture used by other companies in hundreds of games. The San Francisco-based outfit is leveraging its digital-twin expertise to a broad range of companies and researchers collecting “synthetic data” on everything from amusement park rides to robots, building designs and manufacturing systems.
Identifying The Fourth Industrial Revolution
The Fourth Industrial Revolution received a significant push forward from the Covid-19 pandemic. The sudden shift to working from home brought dramatic changes in how businesses run and how consumers live and shop.
Those changes, in turn, helped accelerate the rate at which many companies digitized their business models. For example, health care sped its move into telehealth and away from paper-based record keeping. Retail dived deeper into e-commerce. Banking embraced financial tech in a bear hug.
Klaus Schwab, executive chairman of the World Economic Forum, first labeled the Fourth Industrial Revolution more than a decade ago. In a 2016 article, Schwab said this newest revolution was not an extension of the third because of its velocity, its breadth and depth, and its systemic impact.
“The speed of current breakthroughs has no historical precedent,” Schwab wrote. Moreover, when compared with previous industrial revolutions, the Fourth is evolving at an exponential rather than a linear pace. It is disrupting almost every industry in every country.
But the technologies also raise pointed questions. The broader implications and impact of automation on jobs, skills and wages are only starting to be assessed. One example: The millions of Americans joining the work migration deemed “The Great Resignation” may well be just one effect of changes tied to the Fourth Industrial Revolution.
Experts in labor economics do not always agree on how automation will influence the future of work. Some see major disruptions and dystopian scenarios caused by dwindling jobs markets. On the other hand, some forecasts call for utopian extremes in which the positive aspects will outweigh the negative.
Automation has already replaced countless cashiers, factory workers, telemarketers, customer-service reps and warehouse workers. Truck drivers, educators and even various medical professionals are among the next tier of targets for automated trades.
Reinventing Operations And Processes
For now, the rise of fifth-generation mobile networks, dubbed 5G wireless, and technologies such as edge computing, have significantly increased data bandwidth and operating speeds far beyond current levels. That bandwidth enables a broad reinvention of operations and processes.
It has paved the way for smart factories and warehouses. Such facilities increasingly employ collaborative robots that are able to self-manage workflows. Smart power grids have begun to monitor and manage power flows more safely and effectively. In addition, technologies using broader bandwidth are also enabling tremendous advancements in drug development and medical sciences.
Lumen plays among the leaders in the field of edge computing, a segment projected to balloon in the coming years.
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“Traditional information technology can’t support the incredibly fast data transmission needed for modern data-driven applications,” Lumen’s Andrews said. Edge computing dramatically increases performance by enabling builders to create web applications closer to the end users. That, in turn, leads to improved worker productivity, better customer experience and higher quality product and services.
Andrews projects that the Forth Industrial Revolution will continue to grow exponentially. The revolution is evolving in ways that “fundamentally change not only our way of life, but life itself, driving an unrelenting acceleration of human progress.”
Please follow Brian Deagon on Twitter at @IBD_BDeagon for more on tech stocks, analysis and financial markets.
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