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1、October 2024The next big arenas of competitionArenas are industries that transform the business landscape.Eighteen future arenas could reshape the global economy and generate$29 trillion to$48 trillion in revenues by 2040.AuthorsChris BradleyMichael ChuiKevin RussellKweilin EllingrudMichael BirshanS

2、uhayl ChettihEditorMax BerleyData visualizationChuck BurkeiiThe next big arenas of competitionCopyright 2024 McKinsey&Company.All rights reserved.Cover image:Large stadium lights ZargonDesign/Getty ImagesConfidential and proprietary.Any use of this material without specific permission of McKinsey&Co

3、mpany is strictly prohibited.1The next big arenas of competitionMcKinsey Global InstituteThe McKinsey Global Institute was established in 1990.Our mission is to provide a fact base to aid decision making on the economic and business issues most critical to the worlds companies and policy leaders.We

4、benefit from the full range of McKinseys regional,sectoral,and functional knowledge,skills,and expertise,but editorial direction and decisions are solely the responsibility of MGI directors and partners.Our research is currently grouped into five major themes:Productivity and prosperity:Creating and

5、 harnessing the worlds assets most productively Resources of the world:Building,powering,and feeding the world sustainably Human potential:Maximizing and achieving the potential of human talent Global connections:Exploring how flows of goods,services,people,capital,and ideas shape economies Technolo

6、gies and markets of the future:Discussing the next big arenas of value and competitionWe aim for independent and fact-based research.None of our work is commissioned or funded by any business,government,or other institution;we share our results publicly free of charge;and we are entirely funded by t

7、he partners of McKinsey.While we engage multiple distinguished external advisers to contribute to our work,the analyses presented in our publications are MGIs alone,and any errors are our own.You can find out more about MGI and our research at Directors Sven Smit(chair)Chris Bradley Kweilin Ellingru

8、d Sylvain JohanssonNick LeungOlivia White MGI Partners Mekala Krishnan Anu Madgavkar Jan Mischke Jeongmin Seong Tilman Tacke2The next big arenas of competitionContentsAt a glance 4Introduction 6Executive summary 8Chapter one.The arenas of today 17Chapter two.The arena-creation potion 37Chapter three

9、.The arenas of tomorrow 55Arenas of tomorrow compendium 83 1.E-commerce 852.Artificial intelligence software and services 893.Cloud services 934.Electric vehicles 975.Digital advertising 1066.Semiconductors 1147.Shared autonomous vehicles 1198.Space 1259.Cybersecurity 13210.Batteries 13711.Modular c

10、onstruction 14412.Streaming video 14913.Video games 15414.Robotics 16115.Industrial and consumer biotechnology 16716.Future air mobility 17417.Drugs for obesity and related conditions 17918.Nuclear fission power plants 185Acknowledgments 191Endnotes 192Technical appendix 2003Title of publication4The

11、 next big arenas of competition Arenas are a unique category of industries defined by two characteristics:high growth and dynamism.They capture an outsize share of the economys growth,and the market shares of players within them change to an outsize degree.We have identified 18 potential arenas of t

12、he future that could reshape the global economy,generating$29 trillion to$48 trillion in revenues by 2040.These arenas range from AI software and services to cybersecurity,from future air mobility to drugs for obesity and related conditions,and from robotics to nonmedical biotechnology These future

13、arenas could generate$2 trillion to$6 trillion in profit by 2040.Their collective share of global GDP could increase from 4 percent to 10 to 16 percent by 2040.Twelve arenas of today showed outsize growth and dynamism from 2005 to 2020.These industries include e-commerce,biopharma,electric vehicles,

14、consumer internet,and cloud services.They had a revenue compound annual growth rate(CAGR)of 10 percent and market capitalization CAGR of 16 percent,and they tripled their global GDP share from 3 to 9 percent in the period.By contrast,non-arenas had only a 4 percent revenue CAGR and a 6 percent marke

15、t cap CAGR over the same period.The many striking differences between the 12 arenas of today and non-arenas inform our understanding of the arenas of the future.Arenas earn far greater profits than other industries do,they spawn a disproportionate number of global giants,and they offer unusually str

16、ong opportunities for new entrants to become powerhouses.Three combined ingredients in an“arena-creation potion”tend to generate the escalatory mode of competition that characterizes arenas.The telltale elements of a forming arena are business model or technological step changes,escalatory investmen

17、ts,and a large and/or growing addressable market.The presence of these elements can lead to escalatory competition among players,who make large investments to gain not only market share but also a product quality edge,compounding the benefits and further setting them apart from other companies in a

18、race to the top.At a glance18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobility

19、Obesity drugsNuclear fssion5The next big arenas of competition6The next big arenas of competitionThis report from the McKinsey Global Institute identifies and describes a category of industries that could account for much of the future change in the business landscape and transform the world.We call

20、 these industries arenas of competition.To identify the arenas of tomorrow,we look back at the arenas of today to see how they evolved.Arenas are defined by two characteristics:they capture an outsize share of the economys growth,and market share within them changes hands to an outsize degree.The pr

21、esence of those two attributes indicates that a new competitive game has begun,usually prompted by a new bundle of technologies and business models.Understanding arenas is important for at least two reasons.First,they are where the business world is reshaped.They account for many major shifts in inv

22、estment,R&D,and value,as well as the emergence of many new and growing global corporations.Second,once we start to recognize the factors that could point to the potential formation of an arena,we can identify a set of arenas that could plausibly emerge over the next 15 years.If the past is any guide

23、,they will be centers of competition,innovation,and value creation.The report begins with a discussion of 12 arenas of competition that emerged between 2005 and 2020,including cloud services,e-commerce,biopharmaceuticals,and electric vehicles(EVs).Chapter 1 identifies the arenas of today by drawing

24、on a large,customized data set of the top 3,000companies by market cap and explores how the arenas differ from other industries.We used 2005 to 2020 as our analytical interval to delineate a clean decade boundary and ensure consistent,well-established data.Some of the differences are striking:in 200

25、5,these arenas generated only 9percent of our samples economic profit,but by 2019 they accounted for 49 percent of all economic profit in the biggest companies.In chapter 2,we examine how todays arenas emerged and grew as companies entered a mode of intense competition and made the escalatory invest

26、ments characteristic of arenas.Understanding this industrial logic is crucial because knowing how todays arenas were born could help us spot tomorrows potential arenas.We identified a“potion”that appears to underlie the emergence of arenas.In chapter 3,we describe 18 potential arenas of tomorrow and

27、 explore how they may materialize,including their potential sources of growth and dynamism.Understanding potential arenas is relevant for entrepreneurs and incumbent companies that want to compete directly in arenas,other companies whose businesses would be affected by the emergence of arenas,invest

28、ors looking to allocate capital to these industries,people seeking jobs in the winning industries of the coming decades,and policy makers looking to play a role in how and where these industries develop.A compendium covering the 18 industries that could become the arenas of tomorrow includes further

29、 descriptions of the growth factors and competitive dynamics that we present in the report and that could shape each potential arena over the coming decades.To be sure,looking into the future is always speculative,and we recognize the possibilityindeed,the likelihoodthat we may be getting some thing

30、s wrong.For that reason,we have made transparent our assumptions,or what you need to believe about each candidate arena to match our scenarios.This will allow readers to calibrate their own views of which industries will end up becoming arenas.Introduction18 future arenas in detailArenas of todayAre

31、na-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion7The next big arenas of competition8The next

32、 big arenas of competitionThis report identifies a set of present and future arenas of competition,industries that could transform the business landscape and our world.Arenas are defined by high growth and high dynamism.These industries capture an outsize share of value growth,and market share withi

33、n them shifts dramatically,as measured by the“shuffle rate,”a metric of company market share movements(Exhibit E1).These two characteristics signal a new era of competition and signify new technologies and business models in play.The arenas of todayWe have identified 12 arenas of today:software,semi

34、conductors,consumer internet,e-commerce,consumer electronics,biopharmaceuticals,industrial electronics,payments,video and audio entertainment,cloud services,electric vehicles(EVs),and information-enabled business services(ranked in order of 2020 market cap).“Arenas of today”refers to the arenas that

35、 formed over the past two decades.We used 2005 to 2020 as our analytical interval to set a clean decade boundary and ensure consistent,well-established data.Understanding arenas is important for at least two reasons.Not only are they where the business world is reshaped,but recognizing the elements

36、that are usually present in an arena and that help explain its growth and dynamism allows us to identify a set of arenas that could plausibly emerge over the next 15 years.If the past is any guide,they will be centers of competition,innovation,and value creation.Executive summary18 future arenas in

37、detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssionIn 2005,arenas gener

38、ated less than 10 percent of total global economic profit.By 2019,they accounted for half of the total.9The next big arenas of competitionTodays arenas stand out from other industries in six ways.Arenas captured an increasing share of economic profit.In 2005,arenas generated$55 billion,or 9 percent

39、of total global economic profit,while other industries generated$549 billion,about 90 percent of the total.By 2019,arenas were generating$250 billionhalf of total global economic profit.Comparing 2005 economic profit rankings with those from 2019 and 2020,every arena except industrial electronics mo

40、ved up.Arenas attracted outsize levels of investment for innovation.Arenas share of R&D investment was already high in 2005 and remained high for 15 years.Sixty-two percent of US business R&D spend went to arenas and arena-adjacent industries in 2005;that figure increased to 65 percent by 2020.Semic

41、onductors and electrical components accounted for the largest share,followed by biopharmaceuticals and software.Exhibit E1McKinsey&CompanyNote:Based on McKinsey Industry Classifcation;Quality 4&5 data from McKinsey Value Intelligence,PitchBook only;subsidiaries excluded;includes only frms with marke

42、t cap$3.5B in 2005 or$5B in 2020;number of frms by arena varies;frms identifed as did not exist/nonpublic in 05 based on no McKinsey Value Intelligence market cap data in 2005.Source:McKinsey Value Intelligence;McKinsey Global Institute analysisMarket cap shufe rates and growth share for 57 industri

43、esThe 12 arenas of today exhibited outsize shufe rates and signifcant growth in share by market cap.0246248Arenas of todayOther industriesCircle size=market cap in 2020Shufe rate(increase in market capshare amongcompanies ineach industry),200520,percentagepointsIndustry share growth rate(change in s

44、hare of global increasein market cap),200520,percentage pointsElectric vehicles,0.9Cloud services,1.0Payments,1.6E-commerce,3.3Consumerinternet,3.5Consumerelectronics,2.5Biopharma,2.3Video and audioentertainment,1.5Industrialelectronics,2.0Information-enabledbusiness services,0.9Software,3.6Semicond

45、uctors,3.51009080706050403020Market cap,$trillion18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biot

46、echFuture air mobilityObesity drugsNuclear fssion10The next big arenas of competition Arenas enabled new entrants to grow.In 2020,33 percent of arenas total market capitalization was held by companies that had been“outsiders”in 2005that did not exist,had market caps of less than$3.5 billion,or exist

47、ed but were not yet meaningful competitors in those arenas.In comparison,businesses new to non-arena industries held just 15 percent of total market cap.New players tended to enter during early stages of arena formation when competitors identified innovations that met customer demands as targets for

48、 investment.This competition led to arenas characteristic dynamism.Arenas spawned giants.Arenas were more likely than non-arenas to give rise to the worlds largest companies.In 2020,74 percent of arenas total market cap was held by companies with market caps greater than$50 billion,compared with 47

49、percent for other industries.Fifty percent of arenas total market cap was held by companies with market caps greater than$200 billion,compared with only 15 percent for other industries.Large companies were also more likely to be in arenas.Of the companies with market caps above$200 billion,more than

50、 half belonged to arenas,even though arenas represent only one-fifth of the overall sample by number of companies.In 2005,just one of the top ten companies was in a future arenaMicrosoft,with a market cap of$278 billion.By 2020,eight of the ten were in arenas,with market caps ranging from$511 billio

51、n to$1.7 trillion.Arenas tended to be more concentrated.Concentration was observed at certain times in arenas;for example,the top ten players in five arenas(cloud services,consumer electronics,consumer internet,EVs,and payments)accounted for at least 90 percent of 2020 arena market cap and revenues

52、in our sample.At the same time,competitive pressure to innovate remained.Investments that improve products or take advantage of network effects can have increasing returns,requiring leaders to continually innovate to retain prominence.Arenas industry structures are rarely static or stable in the lon

53、g term.Escalatory investments and their exceptional returns for arenas can inspire fierce competition in markets that already have high levels of innovation,provoking step changes in technology and business,which can disrupt the ranks of winners.Arenas were more global.On average,50 percent of arena

54、 revenues were generated outside companies home regions,compared with 42 percent for non-arena companies.Companies in arenas were also much more likely to be multinationals.Sixty-eight percent of arena companies derived more than 20 percent of their revenues from countries other than their own.By co

55、ntrast,about half of non-arena companies took in more than 20 percent of revenues from other countries.The software arena is particularly global.Its four largest companies by 2020 revenuesMicrosoft,IBM,Oracle,and SAPgenerated almost 60 percent of their revenues outside their home countries.18 future

56、 arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion11The nex

57、t big arenas of competitionThe origins of arenas To help us identify future potential arenas,we examined how todays arenas originated.We observed three elements that,when combined,were likely to result in high growth and high dynamism and to generate an arena.The three ingredients,which we call an“a

58、rena-creation potion,”are business model or technology step changes,escalation incentives for investments,and a large or growing addressable market.Business model or technology step changes.Technology performance and adoption are often modeled as idealized S-curves.When a technology capability under

59、goes a step change,adoption starts off slowly,reaches an inflection point when it accelerates,then flattens out as the technology reaches maturity.Although real-world technology capabilities and adoption do not perfectly adhere to this S-curve,we observe technology step changes in our arenas,for exa

60、mple the innovations in lithium-ion battery technology that enabled production of EVs at scale.Business model step changes can also result from technology that shifts commercial models(who pays for what and how)for products or services,thereby disrupting existing market structures,as occurred with e

61、-commerce and with video and audio entertainment(streaming).Escalatory incentives for investments.Companies that leverage investments to not only produce more products but fundamentally change and improve their products can boost their competitive position and rapidly gain market share.Such investme

62、nts are features of specific types of spending,such as marketing,R&D,and certain capital expenditures.As companies advance their capabilities in this way,they tend to also improve long-term margins and see returns increase with scale.As a result,competitors also have a strong incentive to invest,beg

63、inning an“arms race”in which they iteratively invest to scale and scale to invest,causing a simultaneous escalation in capabilities.This pattern accelerates growth and the kind of market share jumps that are typical of arenas,and eventually can limit the ability for new entrants to enter the arena,u

64、nless a new technology or business model step change again opens up the playing field.Large or growing addressable market.Companies tend to reach large or fast-growing markets either by already playing in sizable markets where demand growth continues to outstrip the rest of the economy or by displac

65、ing share of an existing large market with a superior product or service.The companies in our arenas that played in fast-growing markets took advantage of technology and business model step changes to accelerate value creation.These markets typically already had revenue pools of more than$100 billio

66、n in 2005,and companies competing in them made escalatory investments that improved efficiencies or broadened capabilities.These arenas included biopharmaceuticals,industrial electronics,information-enabled business services,consumer electronics,payments,semiconductors,software,and video and audio e

67、ntertainment.Together,they recorded 5 to 13 percent revenue compound annual growth rates(CAGRs)from 2005 to 2020.Companies that displaced share of existing large markets achieved rapid growth by launching novel categories of products or services,taking shares from existing markets or unlocking laten

68、t demand.These companies industries include cloud services,consumer internet,e-commerce,and EVs.Their revenue grew at a 13 to 33 percent CAGR from 2005 to 2020.The three ingredients of the arena-creation potion produce an escalatory mode of competition,which results in high growth and high dynamism.

69、The continuous investments characteristic of escalatory competition typically build heightened competitive capabilities and globally relevant scale.Competition in these settings can be like a tournament with a huge prize to the winner,but it is not a lifelong crown,because a new round of competitive

70、 escalation often begins just as the last one is settling.This dynamic contrasts with more traditional modes of competition,which involve initial entry costs and additional investments to increase production quantity that result in more localized and 18 future arenas in detailArenas of todayArena-cr

71、eation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion12The next big arenas of competitionstatic indust

72、ry structures.In escalatory competition,players must iteratively improve product quality through investment and capability building to obtain or retain market share.In addition,the arenas of today generally benefited from the overall trend toward digitization.This last era of digitization was a fert

73、ile place for big arenas to bloom.Global internet connectivity allowed e-commerce players to connect buyers and sellers across the globe,providing the opportunity for customers to purchase goods anytime,anywhere.Digitization also transformed video and audio entertainmentand streaming video in partic

74、ularby shifting media consumption from movie theaters and CDs to homes and mobile devices.Continual exponential improvements in the cost of processing and communicating information created a long S-curve.Digitization enabled global markets and scaled distribution platforms.Software-driven business m

75、odels with low variable costs and strong network effects created a powerful battleground for escalatory investment.It is no surprise that most of todays arenas are rooted firmly in the digital economy.The arenas of tomorrowWith these insights on existing arenas and their characteristics as a guide,w

76、e have identified 18 potential future arenas that together could yield$29 trillion to$48 trillion in revenues and$2 trillion to$6 trillion in profits by 2040(Exhibit E2).In terms of impact on the economy,we estimate that they could grow from about 4 percent of GDP in 2022 to 10 to 16 percent by 2040

77、.This translates to a 18 to 34 percent share of total GDP growth.This shift in GDP share is a hallmark of arenas:if we perform a similar analysis on our arenas of today,we find that the sample companies increased their equivalent share of GDP from 3 percent in 2005 to 9 percent in 2020.18 future are

78、nas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssionSome arenas o

79、f today will continue as arenas of tomorrow.Others will no longer qualify for arena status.13The next big arenas of competitionExhibit E2McKinsey&CompanyDefned as net operating proft less adjusted taxes(NOPLAT).NOPLAT share based on most closely mappable industries from our database of 3,000 compani

80、es analyzed in chapters 1 and 2.Source:Company annual reports;McKinsey Value Intelligence;McKinsey Global Institute analysisThe 18 potential arenas of tomorrow could generate$29 trillion to$48 trillion in revenues and$2 trillion to$6 trillion in profts.1,9006,1007,250+Total29,00048,000(811)18 potent

81、ial arenasof tomorrow,by 2040revenue estimate,$billion2040 estimate(CAGR,202240,%)Revenue,2022AI software and services230920(1520)851,5004,600(1725)Cloud services160510(1015)2201,6003,400(1217)Electric vehicles100320(410)4502,5003,200(1012)Digital advertisements320580(1520)5202,1002,900(810)Semicond

82、uctors340600(2025)6301,7002,400(68)Space50160(510)3009601,600(710)Cybersecurity90240(1520)1605901,200(812)Batteries40110(510)988101,100(1214)Shared autonomous vehicles20460(420)n/a6102,300Nuclear fssion power plants550(530)1865150(713)Drugs for obesity and related conditions30100(2535)24120280(915)R

83、obotics20180(1020)21190910(1323)Industrial and consumer biotech10270(430)140340900(511)Video games80180(1520)230550910(58)Streaming video50150(1015)1605101,000(611)Modular construction20220(420)1805401,100(610)Future air mobility1070(1020)n/a75340Proft,2040 estimate,$billion(proft margin,%)E-commerc

84、e14,00020,000(79)4,0002801,000(25)18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air m

85、obilityObesity drugsNuclear fssion14The next big arenas of competitionThe potential future arenas can be divided into three groups:arenas of today that are likely to continue developing into arenas of tomorrow;subsegments of current arenas that may grow sufficiently large and fast to become spin-off

86、 arenas;and emergent arenas that are not as closely linked as the potential spin-offs to any of todays arenas.While at different stages of their evolution,each displays early signs of the three arena-creation potion elements.Continuing arenas1.E-commerce.Companies that sell goods through digital cha

87、nnels and fulfill them directly2.Electric vehicles.Manufacturers of battery,plug-in hybrid,and fuel-cell EVs3.Cloud services.Companies that deliver on-demand cloud infrastructure and platforms as aservice4.Semiconductors.Designers and manufacturers of semiconductors,microchips,and integrated circuit

88、s as well as providers of tools for semiconductor manufacturingSpin-off arenas5.AI software and services(spin-off from software).Companies that provide software and services incorporating AI,excluding the hardware necessary to operate AI6.Digital ads(spin-off from consumer internet).Platforms that e

89、nable advertisers to reach consumers digitally7.Streaming(spin-off from video and audio entertainment).Providers of on-demand video entertainment over the internetEmergent arenas8.Shared autonomous vehicles.Operators of shared autonomous vehicle services 9.Space.Providers of space-related infrastruc

90、ture and services to the commercial and state-sponsored segments10.Cybersecurity.Companies that provide protection for computer systems from unintended and unauthorized access,modification,or destruction11.Batteries.Manufacturers of rechargeable batteries used for EVs and other technologies that are

91、 mostly linked to the energy transition12.Video games.Producers and distributors of games played on dedicated consoles,PCs,and mobile phones13.Robotics.Manufacturers of robots and providers of robotics solutions14.Industrial and consumer biotechnology.Providers of biotechnology-enabled products in m

92、arkets like agriculture,alternative proteins,biomaterials and biochemicals,and consumer products15.Modular construction.Companies that operate in the modular construction value chain,from design to assembly,with volumetric modules16.Nuclear fission power plants.Players that construct nuclear fission

93、 power-generation facilities17.Future air mobility.Operators of air mobility transportation services,such as electric vertical takeoff and landing vehicles(eVTOLs)and delivery drones18.Drugs for obesity and related conditions.Companies that sell glucagon-like peptide-1(GLP-1)drugs and other treatmen

94、ts for obesity and related conditions,such as diabetes 18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medica

95、l biotechFuture air mobilityObesity drugsNuclear fssion15The next big arenas of competitionFive arenas of todaybiopharmaceuticals,consumer electronics,information-enabled business services,industrial electronics,and paymentscould lose arena status.They are unlikely to maintain the scale of growth an

96、d dynamism that would propel them into being arenas of tomorrow.We also examine almost-emergent arenas,industries with some elements that could make them arenas but that also have uncertain growth or dynamism prospects and a relatively lower probability of evolving into arenas.We include these becau

97、se predicting the development of arenas is not an exact science,and we recognize that we could be wrong.These potential arenas could represent significant opportunities.The almost-emergent arenas include clean hydrogen,lower-carbon materials,products and services for older adults,nuclear fusion,rene

98、wables generation equipment and infrastructure,sustainable fuels,virtual reality and augmented reality,and Web3(including decentralized finance).Our analyses of present and future arenas reveal three key swing factors that go beyond uncertainties in the modeling and could be fundamental to the evolu

99、tion of the arenas of tomorrow in technology,investment patterns,and sources of demand.These factors are developments in geopolitics affecting regulation of innovation and technological regionalization,advances and adoption of AI technology in a range of industries,and the pace of the green transiti

100、on,which aims to alter the course of climate change and could drive demand in various parts of the market.The 18 arenas of tomorrow we have identified could be even more materially transformative than the 12 arenas of today,shaping how we consume and process data,approach health and wellness,and int

101、eract and communicate with one another.They could introduce new options for our lives as well as new questions about our social progress,from the morality and ethics underpinning data and privacy to imperatives for businesses to be inclusive and sustainable.Recognizing how and when arenas originate,

102、understanding how they evolve,and anticipating the way they could change society can offer a unique view of the arc of societys progress.As we look forward,this report provides an initial view of where to expect the most growth and dynamism and how to update that view as the future takes shape.At th

103、e end of the report,we include a compendium that sketches the quantitative possibilities for the range of growth and the dynamism prospects of each of the 18 potential arenas of tomorrow.18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsS

104、emiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion16The next big arenas of competition17The next big arenas of competitionIn 2005,there was no iPhone or App Store,

105、no one had done a cloud migration,and a mass-market EV would have sounded like science fiction.Today,these technologies are commonplace,part of a wave of innovation that radically changed businesses,the economy,and the way we live.The economic growth from these innovations was concentrated in a rela

106、tively small number of industries.The numbers tell the tale.Of the worlds top 20 companies by market cap at the end of 2005,only four remain in the top 20 as of September 2024.The combined market cap of the top 20 grew more than sixfold from around$4 trillion at the end of 2005 to$25 trillion by Sep

107、tember 2024.Of the new entries,almost all were in a handful of industries we have designated as arenas.This picture looks remarkably similar for the interval of 2005 to 2020,the period we study in detail.Of the worlds 100largest companies by market cap in 2005,only 46 remained on the list in 2020.Of

108、 the 54 newcomer companies,almost half were in a handful of industries we have designated as arenas,lifting the total number of top 100 companies in arenas from ten in 2005 to 33 in 2020.Arenas are defined by two characteristics:their revenues and market cap increase at a far faster pace than the re

109、st of the economy,and shares of revenue and market cap within them shift substantially over time.We identified 12 arenas that formed during the 200520 period,ranging from cloud services to e-commerce to consumer internet to biopharmaceuticals,that have reshaped the business world.Arenas also transfo

110、rmed our everyday lives,including the way we interact with one another,access information,complete tasks,entertain ourselves,and receive medical treatment.Take,for example,the simple experience of watching a movie with friends.In 2005,the process was straightforward:check schedules in the newspaper,

111、call your friends,drive to the nearest theater or perhaps to the local video store in hopes that your DVD of choice is in stock.Today,a moviegoer would use their phone to check schedules online,decide if they want to buy a ticket in advance,message friends in a group chat,and proceed to the theater,

112、perhaps in an EV hailed ride.Alternatively,you can decide to host a watch party,hop on a Zoom call,and stream a movie on Netflix.That activity alone involves a multitude of arenas,including semiconductors,software,and consumer electronics that enable mobile phone features;e-commerce,payments,and con

113、sumer internet,which allow the purchase of tickets online or buying streaming subscriptions;and EVs,industrial electronics,cloud services,and video and audio entertainment,which innovated ways of enjoying a service.In this chapter,we describe the 12 arenas of today and explore how they differ from o

114、ther industries.Arenas are exceptional industriesFor the purposes of this report,we have defined industries as groups of companies that compete for the same addressable market.1 Because these companies sell similar products and target the same customers,their strategies inevitably overlap,making the

115、m both competitive and interdependent.Companies can be part of more than one industry when they sell products and services in more than one market.18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurit

116、yE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssionThe arenas of todayCHAPTER ONE18The next big arenas of competitionArenas are a unique set of industries in which the competitive tussle is heightened,res

117、ulting in the two characteristics we have identified:extraordinary growth and exceptional dynamism or shifts in shares.Players in arenas tend to innovate in technology and business models,invest at escalating levels in competitive capabilities,and expand possible addressable markets.Arenas show far

118、greater levels of growth and dynamism than their non-arena peers because of these characteristics.Industries can be analyzed on many levels.To identify potential arenas,we selected definitions based on supply and demand considerations.The supply perspective required some similarity in the technology

119、 of competing companies,as arenas are often launched through technology step changes.The demand perspective ensured that the products and services were sufficiently similar or substitutable and could define an addressable market.Together,these two criteria allowed us to define potential arenas at co

120、mprehensible levels of granularity(but we also recognize that these criteria are subjective,and alternative delineations are possible).In some cases,arenas were defined as a fast-growing portion of an existing industry.To name one such case,the automotive industry can be partitioned between internal

121、 combustion engine(ICE)vehicles and EVs.A similar pattern applies to other instances where a new arena forms adjacent to and draws demand from a large existing industry,as is the case with e-commerce and traditional retail,and biopharmaceuticals and traditional pharmaceuticals.2The arenas of today w

122、ere at different stages of development on different timelines and followed different trajectories in the 200520 time frame.Its easy to imagine the differing trajectories of the arenas of previous eras:oil and gas and mining,driven by rapid expansion of energy and materials needs;automobiles and comm

123、ercial air travel,fueled by demand from a rising global middle class;and personal computers,powered by fast-growing new technologies,to name a few.We suggest,however,that todays business landscape is influenced by the overlapping emergence of many big arenas.The common cause is the exponential force

124、 of digitization that has enabled both novel business models and rapid technological improvement on a global scale;we discuss these factors of critical importance later in this report.Now we turn to the arenas of today to determine how they differ from other industries.Todays 12 arenas grew quickly

125、and were dynamicTo identify todays arenas,we relied on a McKinsey data set covering the worlds 3,000 largest companies.For the purposes of our analysis,we reclassified some of them or parts of them from broad industry groups(such as retail)into more specific competitive categories(such as e-commerce

126、).In some cases,this meant dividing a very large company(for example,Microsoft or Amazon)into two or three pieces,each in a different competitive category.We then identified industries that exhibited outsize growth and market dynamism.Specifically,these industries grew quickly from 2005 to 2020,dram

127、atically outpacing overall economic growth.That left them with a larger share of the worlds revenues and market cap in 2020 than in 2005,a difference we call the“industry share growth rate.”This metric captures the disproportionate value created in those industries.In addition,their dynamism,measure

128、d by company market share movementsa metric we call the“shuffle rate”was relatively high during the period.In other words,there was more shifting of market share within the industries we selected to be arenas than in other industries(see sidebar“Industry dynamism measured by share shifts”and the tec

129、hnical appendix).18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity dr

130、ugsNuclear fssion19The next big arenas of competitionSidebar:Industry dynamism measured by share shiftsTo measure industry dynamism,we considered its degree of market share shifting by seeing how much either revenues or market cap changed hands among companies.Consider some of the ten biggest player

131、s in the mobile and consumer electronics industry.In 2005,Sony held 27 percent of market share by revenue in this group,but by 2020,its share had declined to 13 percent,a 14-percentage-point drop.Apple,by contrast,had a 4 percent market share by revenues in 2005.That had grown to 30 percent by 2020,

132、an increase of 26percentage points.Continuing this exercise for the entire market,we end up with market share percentage-point changes for each player.Adding up just the positive percentage-point changes gives us the industrys market shuffle rate as measured by revenues:53 percentage points(ExhibitA

133、).We applied the same process for both revenues and market cap to all companies,not just the top ten,in each industry in our analyzed data set.Exhibit AMcKinsey&CompanySource:McKinsey Value Intelligence;McKinsey Global Institute analysisCompany ranking by market share of revenueThe top ten companies

134、 in the consumer electronics industry had a 53-point shufe rate.Apple420052020Revenue share,%Positive shifts,200520Change in ranking20052020Huawei2Samsung14Sony27LG17Xiaomi0Microsoft11Sharp10Lenovo0Shenzhen Transsion030+2621+19141366+6431+11+1Outsidetop 10123456789101234578910653Percentage-point sum

135、=shufe rate18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuc

136、lear fssion20The next big arenas of competitionNow consider the top ten players in a different industry,aerospace and defense,which had notably less dynamism.Following the same approach,that industry had a 16percentage-point shuffle rate,much lower than the shuffle rate of the mobile and consumer el

137、ectronics industry(Exhibit B).The shuffle rate indicates the degree of dynamism in an industry.We assumed that industries that had no revenues or market cap at the start of a period would necessarily have an aggregate share shift of 100 percent,as is the case with the nascent EV industry.Because hig

138、h levels of dynamism were a criterion for qualifying as an arena,any nascent industry made the cut.Exhibit BMcKinsey&CompanySource:McKinsey Value Intelligence;McKinsey Global Institute analysisCompany ranking by market share of revenueThe top ten companies in the aerospace and defense industry had a

139、 16-point shufe rate.Lockheed Martin1320052020Revenue share,%Positive shifts,200520Change in ranking20052020Airbus14Boeing18Raytheon14General Dynamics7Northrop Grumman10Honeywell9BAE Systems6Thales0Safran016+315+1141499+2865+55+5Outsidetop 10123456789101234578910616Percentage-point sum=shufe rateSid

140、ebar:Industry dynamism measured by share shifts (continued)18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-me

141、dical biotechFuture air mobilityObesity drugsNuclear fssion21The next big arenas of competitionOur method for measuring industry-share growth rates and shuffle rates yielded rankings of industries by the extent of their growth and dynamism between 2005 and 2020one set as measured by market cap(Exhib

142、it 1)and another set as measured by revenues(Exhibit 2).We used a ranking system that considered both measures to settle on a single list of 12 arenas that placed high in combined ranking scores and had a 2020 market cap of at least$800 billion(for more information,see the technical appendix).Exhibi

143、t 1McKinsey&CompanyNote:Based on McKinsey Industry Classifcation;Quality 4&5 data from McKinsey Value Intelligence,PitchBook only;subsidiaries excluded;includes only frms with market cap$3.5B in 2005 or$5B in 2020;number of frms by arena varies;frms identifed as did not exist/nonpublic in 05 based o

144、n no McKinsey Value Intelligence market cap data in 2005.Source:McKinsey Value Intelligence;McKinsey Global Institute analysisMarket cap shufe rates and growth share for 57 industriesThe 12 arenas of today exhibited outsize shufe rates and signifcant growth in share by market cap.0246248Arenas of to

145、dayOther industriesCircle size=market cap in 2020Shufe rate(increase in market capshare amongcompanies ineach industry),200520,percentagepointsIndustry share growth rate(change in share of global increasein market cap),200520,percentage pointsElectric vehicles,0.9Cloud services,1.0Payments,1.6E-comm

146、erce,3.3Consumerinternet,3.5Consumerelectronics,2.5Biopharma,2.3Video and audioentertainment,1.5Industrialelectronics,2.0Information-enabledbusiness services,0.9Software,3.6Semiconductors,3.51009080706050403020Market cap,$trillion18 future arenas in detailArenas of todayArena-creation potionArenas o

147、f tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion22The next big arenas of competitionOur arenas displayed outsize growt

148、h compared with other industries from 2005 to 2020.Arena revenues grew 10 percent year-on-year in that period,while revenues in other industries grew just 4 percent.The 12 arenas collectively more than doubled their share of revenue(from 6 percent in 2005 to 14 percent in 2020)and nearly tripled the

149、ir share of our data sets total market cap(from 12 percent in 2005 to 34 percent in 2020).The biggest industry share shifts were in categories created by the new tech giants:cloud services,consumer internet,and e-commerce,driven by the growth of leading technology companies like Alphabet(Google),Ama

150、zon,Meta(Facebook),and Microsoft.For instance,e-commerce,which had the largest growth rate for both revenues and market cap,accounted for only$15 billion of revenues in 2005,or 0.1 percent of revenues across all industries.By 2020,this number had grown to$890 billion,or 2.4 percent of revenues acros

151、s all industries.In market cap,our e-commerce sample was an$87 billion industry in 2005,or 0.35 percent of market Exhibit 2McKinsey&CompanyNote:Based on McKinsey Industry Classifcation;Quality 4&5 data from McKinsey Value Intelligence,PitchBook only;subsidiaries excluded;includes only frms with mark

152、et cap$3.5B in 2005 or$5B in 2020;number of frms by arena varies;frms identifed as did not exist/nonpublic in 05 based on no McKinsey Value Intelligence market cap data in 2005.Source:McKinsey Value Intelligence;McKinsey Global Institute analysisRevenue shufe rates and growth share for 57 industries

153、The 12 arenas of today exhibited outsize shufe rates and signifcant growth in share by revenue.0213652431Arenas of todayOther industriesCircle size=revenue in 2020Shufe rate(increase in revenueshare amongcompanies ineach industry),200520,percentagepointsIndustry share growth rate(change in share of

154、global increasein revenue),200520,percentage pointsElectric vehicles,101Cloud services,109Payments,144E-commerce,888Consumerinternet,403 Consumerelectronics,648Biopharma,343Video and audioentertainment,407Industrialelectronics,987Information-enabledbusiness services,154Software,341Semiconductors,574

155、908070605040302010Revenue,$billion18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air m

156、obilityObesity drugsNuclear fssion23The next big arenas of competitioncap across all industries.That number grew to$3.3 trillion,or 4.2 percent of all industries,by 2020.Alibaba,Amazon,and JD.com contributed$547 billion,or 63 percent,of this revenue increase and$2.1 trillion,or 64 percent,of the mar

157、ket cap increase.3 Similarly,consumer internet represented$215billion in 2005,or 0.87 percent,of total market cap,which grew to$3.5 trillion in 2020,or 4.4percent of market cap,in our data set.Alphabet,Meta,and Tencent were the largest players.Cloud services companies represented$54 billion in 2005,

158、or 0.2 percent,of total market cap,which grew to$1 trillion and 1.3 percent of market cap by 2020,driven by growth of the cloud-services businesses of Amazon Web Services(AWS)and Microsoft.These arenas similarly demonstrated exceptional competitive dynamism,measured by the shifts of revenue and mark

159、et cap shares within an industry,or the shuffle rate.Average revenue shuffle rates for arenas were 49 percent,compared with 32 percent for other industries.Average market cap shuffle rates were 66 percent for arenas,compared with 47 percent for other industries.Here we can see new industries transfo

160、rmed,as was the case with mobile and consumer electronics,in which the arrival of smartphones contributed to a large shift in the competitive landscape for players.Total industry revenues of$238 billion in 2005 were carved up as follows:Sony had the highest revenues,$64 billion(27 percent of the tot

161、al),followed by LG with$41 billion(17 percent)and Samsung with$32 billion(14 percent).By 2020,total revenues had grown to$648 billion but had reshuffled,with smartphone players leading the way:Apple had revenues of$192 billion(30 percent of the total),and only Samsung continued to hold a top-three s

162、pot,with revenues of$88 billion(14percent of the total).Sony and LG,which previously had the most revenues,now occupied the fourth and fifth spots,respectively.4 Nokia occupied the fifth spot in 2005 with 10 percent of revenue market share,but by 2020,it held only a 0.3 percent revenue market share

163、in this segment.There is also dynamism happening in these industries beyond just their players in 2005 and 2020.The iconic Blackberry brand was still relatively small in 2005,with roughly$2 billion in revenues.This grew quickly to almost$20 billion by 2010,but then fell again to under$2 billion by 2

164、015.A similar analysis yields the same results for market cap,with high shuffle rates between players.Together,these shifts put consumer electronics high on the reshuffling axis.Cloud services,e-commerce,and EVs also experienced this internal reshuffling,to a large extent due to the large market sha

165、re movements of the players mentioned above(Exhibit 3).The share shifts in market capitalization are also more volatile compared with revenues.For example,the semiconductors arena had the lowest market cap shuffle rate among arenas at 41 percent through 2020.By June 2024,its shuffle rate had more th

166、an doubled to 87 percent,driven by Nvidia market cap growth,effectively giving semiconductors the third-highest market cap shuffle rate among arenas.This dynamism,even in a short time,is typical of an arena.As we explain in chapter 3,semiconductors may continue as a future arena,driven by technologi

167、cal step changes such as the advances of artificial intelligence that can enable rapid reordering of companies in the race to the top.18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAI

168、Cloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion24The next big arenas of competitionExhibit 3McKinsey&CompanyNote:Based on MIC(McKinsey Industry Classifcation);Quality 4&5 data from McKinsey Value Intelligence,Pitc

169、hBook only;subsidiaries excluded;only frms with market cap$3.5B in 2005 or$5B in 2020 are included;#of frms by arena varies;frms identifed as did not exist/non-public in 05 based on no market cap data in 2005 within McKinsey Value Intelligence.Source:McKinsey Global Institute analysis12 arenas of to

170、day,by 2020 market capArenas exhibited exceptional growth in value creation and scale.SoftwareConsumer internetE-commerceConsumer electronicsBiopharmaIndustrial electronicsPaymentsVideo and audio entertainmentCloud servicesElectric vehiclesInformation-enabledbusiness servicesTotalCompanies,#Market c

171、ap,$billionRevenue,$billion259215873624163956825654114020056423,6363,4603,3082,5022,2892,0001,6431,5001,02694188820203,4956424152385738934135105420051943414038886483439871444071091011542020574Semiconductors133620352211191167331110792,89463726,6861,2415,1009.24.22.41.7Growth for all other industries:

172、Growth for arenas of today:18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobility

173、Obesity drugsNuclear fssion25The next big arenas of competitionFollowing is a brief description of the 12 arenas of today,ranked by their market cap in 2020.Software.Companies such as Microsoft,Oracle,and Adobe that develop,maintain,and distribute software,increasingly as a service.Semiconductors.Co

174、mpanies such as Intel,TSMC,and Nvidia that design and manufacture semiconductors.This arena also includes the providers of tools used to manufacture semiconductors,such as ASML.Consumer internet.Companies such as Alphabet,Meta,and Tencent that provide consumers with internet services,including searc

175、h,social media,and email.E-commerce.Companies such as Amazon,JD.com,and Alibaba that only sell products online or provide online marketplaces.This arena also includes the divisions of traditional brick-and-mortar retailers that engage in online sales.Mobile and other consumer electronics.Companies s

176、uch as Apple and Samsung that engineer and manufacture personal mobile and other consumer electronics,such as smartphones,tablets,wearable devices,and televisions.Biopharmaceuticals.Companies such as Amgen and Regeneron that develop and manufacture drugs based on biological materials like proteins a

177、nd nucleic acids instead of producing traditional pharmaceuticals,which are typically drugs consisting of simpler chemical compounds.This arena also includes the biopharma segments of traditional pharma players,such as Pfizer and AstraZeneca.Industrial electronics.Companies such as the contract manu

178、facturers Foxconn,Jabil,and Flex that handle outsourced manufacturing for hardware designers(such as Foxconn for Apple).Also in this arena are original equipment manufacturers(OEMs)such as Panasonic,Siemens,and ABB that manufacture electrical equipment,testing devices,and components.Payments.Compani

179、es such as Visa,Mastercard,and American Express that provide payment and transaction services like the networks that process credit-card payments.Video and audio entertainment.Companies such as Paramount,Disney,and Netflix that provide video and entertainment via broadcasting,video streaming,and aud

180、io streaming,as well as record labels such as Warner Music.Cloud services.Companies and their divisions such as AWS,Microsoft Azure,and Google Cloud Platform that provide IT infrastructure or platforms as online services,such as cloud computing and cloud storage.Electric vehicles.Companies that manu

181、facture EVs,ranging from those specializing only in EVs,such as BYD and Tesla,to the divisions of traditional automotive OEMs like Toyota,GM,and Mercedes-Benz,which have added EVs or plug-in hybrid EVs to their product lines.Information-enabled business services.Professional services firms such as D

182、eloitte;information,data processing,and analytics providers such as ADP and S&P;and consumer-credit-reporting agencies such as Experian,Equifax,and TransUnion.Six key metrics that make todays arenas stand outWe highlighted six metrics in which the arenas of today outpaced other industries:share of e

183、conomic profit,share of R&D growth,proportion of new entrants,proportion of companies with a market cap of more than$200 billion,proportion of market cap held by top ten players,and proportion of companies that generate at least 20 percent of revenues from outside their home country(Exhibit 4).18 fu

184、ture arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion26The

185、 next big arenas of competitionArenas capture an increasing share of economic profit.Todays arenas captured a much larger share of economic profit in 2019 than they did in 2005.Economic profit is what is left over after subtracting the cost of capital from net operating profit.Put differently,it is

186、revenue minus the explicit costs of doing business and the implicit opportunity costs.In 2005,the industries that went on to become arenas generated$55 billion,or 9 percent of total economic profit in our data set,while the other industries we studied generated a combined 91 percent of the total,or$

187、549 billion.By 2019,the arenas were generating$250 billion,or 49 percent of total economic profit.And in the exceptional Exhibit 4McKinsey&CompanyWe cite both 2019 and 2020,acknowledging 2020 was an exceptional year because of the COVID-19 pandemic.Source:McKinsey Global Institute analysisincreasing

188、 economic proftoperating more globallyArenas of today stood apart from non-arenas in terms of Economic proft,$billion555492005250264201929022120206855Share of companies with at least 20%of revenues from outside their home country,%enabling newentrants to grow3315Share of market capheld by new entran

189、ts,2020,%requiring moreR&D investmentDistribution of increase in US spending on R&D,200520,%tending to bemore concentrated7556Share of market capheld by top 10 players,2020,%spawning giants5015Share of total market cap held by companies with market cap of more than$200 billion in 2020,%6733Other ind

190、ustriesArenas of today18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesi

191、ty drugsNuclear fssion27The next big arenas of competitionpandemic year of 2020,the economic profit of arenas continued to increase,while collectively,the economic profit of other industries was negative.Underpinning this increase is a persistently higher return on invested capital of 28 percent in

192、the arenas and 12 percent outside of them(Exhibit 5).Comparing 2005 economic profit rankings with those for 2019,every arena other than industrial electronics moved up(Exhibit 6).5Exhibit 5McKinsey&CompanyComputed as net operating proft after tax/invested capital for a given year.Source:McKinsey Val

193、ue Intelligence;McKinsey Global InstituteEconomic proft,$billionArenas share of economic proft grew from 9 percent in 2005 to 49 percent in 2019.020010010020030040030060050080070090020192005200720092011201320152017Other industriesArenas of today1211101112141324262528313331302020103011Return on inves

194、ted capital,%ArenasOthers49%share9%share18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture

195、 air mobilityObesity drugsNuclear fssion28The next big arenas of competitionExhibit 6McKinsey&CompanySource:McKinsey Global Institute analysis Industry ranking by economic proftArenas rose in rankings of economic proft.11121824293034353840495720052019Consumer electronicsConsumer internetPharmaceutic

196、alsSemiconductorsBiopharmaHardwareEveryday and general retailMedical technologyConglomeratesSoftwareInsuranceHome and personal goodsTelecomAutomotivesApparel and luxuryRetail and commercial banksBeveragesPaymentsIT solutions and servicesIndustrial machineryTobaccoPackaged foodIndustrial equipmentRes

197、taurants and food serviceTravel and leisureGamingAir servicesHealthcareInformation-enabled business servicesE-commerceConsumer durablesAerospace and defenseCloud servicesRecruitment supportOther business servicesLeisure productsBuilding materials and productsAgricultureConsumer servicesVideo and aud

198、io entertainmentMediaWholesale tradingIndustrial electronicsReal estate(excluding China)Freight and logisticsOther utilitiesForest products and packagingElectric vehiclesRail and transportConstruction engineering and servicesMiningChinese real estateChemicalsOil and gasLife insuranceElectric powerNo

199、nbank fnancials123456789101112131415161718192021222324252627282930313233343536373839404142434445464748495051525354555657OtherindustriesArenasof today18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecur

200、ityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion29The next big arenas of competitionIn 2019,consumer electronics led the arenas in economic profit with$58 billion,followed by consumer internet with$4

201、8 billion and semiconductors with$45 billion.In 2020,the same three arenas were in the lead.Many developmentsincluding rising global smartphone penetration,companies widespread shift to cloud computing,and the increase in microchips embedded in a multitude of physical devices such as automobile comp

202、onentsboosted demand for the products in these arenas and fueled profits.The decrease in economic profit among non-arena companies during the same period resulted from a number of factors,including a long-term decline of performance in commodity-driven energy and material sectors,lackluster performa

203、nces by companies based in Europe,and lower profitability in the worlds“next largest”companies(those that rank beneath the 500 largest companies by revenue).6 The industries showing the biggest reduction in economic profit from 2005 to 2019 were oil and gas,which dropped$143 billion;retail and comme

204、rcial banks,which fell$69 billion;non-bank financials,which dropped$58 billion;and mining,which fell$45 billion.The COVID-19 pandemic exacerbated these effects in 2020.Of course,these dynamics change with economic cycles,and some of the industries that trended downward from 2005 to 2020 may see a re

205、surgence;for example,energy has experienced an upswing.Arenas are where investment and innovation happen.Todays arenas received a disproportionate amount of R&D investment from 2005 to 2020.In the United States,62 percent of all R&D spending was already allocated to arenas and arena-adjacent industr

206、ies in 2005.7 That share increased to 65percent in 2020.Despite arenas larger base,their R&D spending grew more than R&D spending in other industries over the same period(Exhibit 7).As a share of revenues,arenas also spent more Exhibit 7McKinsey&CompanySource:National Center for Science and Engineer

207、ing Statistics and Census Bureau,Business Enterprise Research and Development Survey,2005 and 2020;McKinsey Global Institute analysisR&D spending among US companies,$billionArena companies account for a disproportionate amount of R&D spending in the US.20202005Other industries 6.2Arenas of today7.01

208、2820477188350538CAGR,200520,%18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobili

209、tyObesity drugsNuclear fssion30The next big arenas of competitionon R&D:in 2020,10 percent of the revenues of arenas and arena-adjacent industries went to R&D,compared to 5 percent for other industries.8In data from the US National Center for Science and Engineering Statistics,semiconductors and ele

210、ctric components led in R&D spending,followed by biopharmaceuticals and software.The semiconductor industry spent$43 billion on R&D in 2020,up from$19 billion in 2005.This increase reflected intense competition resulting from the disaggregation of the semiconductor value chain.Under the new model,co

211、mpanies made a series of competitive moves across the value chain,escalating investments in increasingly expensive efforts to stake out the technical frontier of one product segment or a single step of the value chain.Nvidia,for example,increased its annual R&D spending by a factor of 11 between 200

212、5 and 2020 to become the leading player in the market for graphics processing units(GPUs).9Biopharma followed with an estimated$92 billion in R&D spending in 2020,up from$35 billion in 2005.This reflected the increase in pharmaceutical companies average R&D spending as a percentage of revenues from

213、about 17 percent in 2005 to 25 percent by 2020.10 In addition,biopharmaceuticals R&D grew at a 14 percent average annual growth rate in the same period,compared with 4 percent for traditional pharmaceuticals.Software followed with an increase in R&D spending from$17 billion in 2005 to$35 billion in

214、2020.Arenas attract“outsiders.”Arenas are fertile ground for new entrants.In 2020,33 percent of arenas total market cap was held by companies that had been“outsiders”in 2005that didnt exist,had market caps of less than$3.5 billion,or existed but were not yet meaningfully competing in those arenas.In

215、 other industries,just 15 percent of the total market cap in our data set in 2020 was held by businesses new to those industries.The entry of new players often happens during the early stages of arena formation,when competitors make investments as they discover which innovative products and services

216、 meet customer demand.Naturally,this means higher dynamism observed in arenas as competition plays out.The consumer internet arena is a good example.About half of that industrys companiesincluding giants such as Meta,Meituan,and Shopifyeither did not exist or did not report any public market cap in

217、2005.11 That said,it would be wrong to think that only young companies belong in arenas.Microsoft and Apple are nearly half a century old.Arenas spawn giants.Arenas are more likely than other industries to include the worlds largest companies.In 2020,74 percent of arenas total market cap was held by

218、 companies with market caps greater than$50 billion,compared with 47 percent for other industries.Fifty percent of arenas total market cap was held by companies with market caps greater than$200 billion,compared with only 15 percent for other industries(Exhibit 8).The same pattern is visible from a

219、perspective of number of firms.In 2020,15 percent of arena companies had market caps greater than$50 billion,compared with 9 percent of non-arena companies.Four percent of arena companies had market caps greater than$200 billion,while only 1 percent of non-arena companies met that benchmark.18 futur

220、e arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion31The ne

221、xt big arenas of competitionWhile arenas are more likely to see most of their market cap driven by giant companies,it is also true that giant companies are more likely to be in arenas.Of the companies that have market caps above$200 billion,more than half belong to arenas,even though arenas represen

222、t only one-fifth of the overall sample by number of companies(Exhibit 9).In 2005,only one of the top ten companies was in a future arenaMicrosoft,with a market cap of$278 billion.By 2020,eight of the ten were in arenas,with market caps ranging from$511 billion to$1.7 trillion.12 The market cap lead

223、was even more pronounced by 2024.Exhibit 8McKinsey&CompanySource:McKinsey Value Intelligence;McKinsey Global Institute analysisDistribution of market cap by company size,2020Most of arenas total market cap is held by giant companies.Arenas of today$200 billion$200 billion445248$50 billion$200 billio

224、n2612773500500350250180130906545322214107Node size(smaller=more advanced technology),nanometers Wafer fabrication equipment sales,$billion20002005201020152020*2025*Projected332632336511300000040404040404018 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical append

225、ixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion40The next big arenas of competitionEscalation mechanism for investmentsThe second potion ingred

226、ient can be observed in the type of investments players have incentives to make,namely escalatory investments.Escalatory investments have two mutually compounding consequences.First,the returns of these investments increase with scale.These outlays not only grow output but fundamentally change and i

227、mprove a companys production function.In other words,they increase quality,not just quantity.As a result,these investments can boost margins and rapidly expand market share,because customers want the best product.By contrast,so-called ticket-to-play investments,such as simply opening new factories a

228、nd branches that arent fundamentally different from existing ones,do not influence market position as much.Second,players begin an arms race in which they iteratively invest to scale and scale to invest.When one player improves quality and starts to gain more profits and market share,other companies

229、 respond and invest more to improve the quality of their product to compete.The more each player invests,the more competitive the race becomes,creating an escalatory cycle.We expand on this intense mode of competition in the next section.Escalatory investments are features of specific types of spend

230、ing,such as marketing,R&D,and certain capital expenditures.These are the kinds of investments that advance a companys capabilities and tend to improve long-term margins.For example,when e-commerce platforms invest in marketing to attract more customers and increase the platforms value for merchants,

231、the cost of mass marketing to customers shrinks relative to revenue potential,expanding per-customer margins.Biopharma companies often invest in novel R&D methodologies,such as AI-driven bioinformatics,to improve clinical success rates and return on investment(ROI).Once a drug is produced and market

232、ed,the cost of R&D investment is spread across that drugs sales.Acquisitions can be a form of R&D investment when they provide access to the capabilities and proprietary assets of the acquired companies.In many instances,an underlying network effect makes investments attractive for arena companies(a

233、 process we discuss later in this chapter).Furthermore,these types of investments are not one-offs when they are escalatorythey are continual and increasing.19Of course,not all investment-intensive industries exhibit this escalatory dynamic.In the steel industry,building a new plant might increase o

234、verall profits,but only by increasing capacity and sales within the same production function.However,e-commerce players like Amazon,as they optimize last-mile delivery to the home,fundamentally change not just their scale but their unique capabilities,too(see sidebar“Tech giants made massive escalat

235、ory investments”).18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity d

236、rugsNuclear fssion41The next big arenas of competitionSidebar:Tech giants made massive escalatory investmentsIf we look at six of the biggest players in several arenas,the magnitude of escalatory investments is enormous.These companiesAlphabet,Amazon,Apple,Meta,Microsoft,and TSMCcollectively investe

237、d$13 billion in capital expenditures and R&D in 2005.By 2020,that number had increased 20-fold,reaching almost$250billion,a 22 percent year-on-year growth rate.By comparison,US capital expenditures rose 3 percent and R&D spending increased 7percent in the same period.1 This pattern of investments ha

238、s continued since 2020,with all six companies maintaining 15 to 23percent CAGRs on their R&D expenses and capital expenditures from 2020 to 2023.Beyond the total size of investments,the allocation between R&D and capital expenditures also showed how investment strategies evolved.For example,Microsof

239、ts capital investments were only$1 billion in 2005,while the company reported spending$6 billion on R&D.By 2020,its capital expenditures had reached$15 billion,not far behind the$19billion for R&D.Alphabet,on the other hand,went from reporting roughly equal amounts for R&D and capital expenditures i

240、n 2005 to reporting nearly 30 percent more on R&D than on capital expenditures by 2020,and nearly 40 percent more by 2023(exhibit).1 US capital expenditures cover US nonfarm businesses;2020 Annual Capital Expenditures Survey,US Census Bureau,December 2021.ExhibitMcKinsey&CompanyMetas multiple and CA

241、GR numbers are indexed to 2010 instead of 2005 due to data availability.Amazons R&D expenditure uses the companys“technology and infrastructure”expense,reported under the GAAP requirement ASC 730 for research and development expenses.Source:McKinsey Value Intelligence;McKinsey Global Institute analy

242、sisSelect companies spending on capital and R&D,$billionInvestments by big tech players escalated 20-fold from 2005 to 2020.020406080100120140TSMCSemiconductorsAppleConsumerelectronicsMetaConsumerinternetMicrosoftCloud services,consumerelectronics,consumerinternet,softwareAlphabetCloud services,cons

243、umerinternet,videoand audioentertainmentAmazonCloud services,e-commerceCapitalR&D33775426535271112738815CAGR,200520,%Multiple,2005202005202010 15232005202010 15232005202010 15232010 202015232005202010 15232005202010 152318 future arenas in detailArenas of todayArena-creation potionArenas of tomorrow

244、Technical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion42The next big arenas of competitionTo illustrate this dynamic within an arena,w

245、e looked at four of the largest players in our sample of cloud-services companies from 2015 to 2020 to determine whether escalating investmentsas indicated by the level of capital expenditurescorrelated with outsize revenue market share(Exhibit 12).In 2015,AWS was the market leader with 23 percent o

246、f revenue market share,followed by Microsoft at 16 percent.In 2020,AWS still led in revenues with 37 percent market share,and Microsoft followed with 21 percent.The continual escalation of these investments is clear:AWS and Microsoft pulled further and further ahead to first gain and then at least m

247、aintain their market share.Exhibit 12McKinsey&CompanyRevenue is proportionally adjusted to relevant business units(eg,AWS for Amazon).Capital expenditures are estimated by applying the revenue split of each company into business units to each companys reported capital expenditures,cumulative startin

248、g 2015,5-year straight-line depreciation applied.Source:McKinsey Value Intelligence;McKinsey Global Institute analysis incorporating data from IDC4 companies cloud services revenue and capital expenditures,201520Share ofindustryrevenue,%Estimated capital expenditures,cumulative,$billionIn the cloud

249、services arena,capital expenditures continued to escalate amid intensifying competition.024681012051015202530354020152020Amazon Web Services(AWS)In 2020:37%share$11.3 billion cumulative spendingMicrosoft21%share$10.4 billion cumulative spendingAlibaba8%share$2.8 billion cumulative spendingAlphabet6%

250、share$5.0 billion cumulative spending18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture ai

251、r mobilityObesity drugsNuclear fssion43The next big arenas of competitionLarge or growing addressable marketTechnological and business model step changes open demand pools that are conducive to escalatory investments.As a result,these changes unlock large and often rapidly growing addressable market

252、sour third potion ingredient.Generally speaking,there are two ways for companies to reach large or fast-growing markets:either they play in already sizable markets where demand growth continues to outstrip the rest of the economy or they displace share of an existing large market with a superior pro

253、duct or service.Companies in the first category took advantage of technology and business model step changes to accelerate value creation in fast-growing,established industries,which typically had revenue pools of more than$100 billion in 2005 but were subject to escalatory investments that improved

254、 efficiencies or broadened capabilities.These arenas included biopharmaceuticals,industrial electronics,information-enabled business services,mobile and consumer electronics,payments,semiconductors,software,and video and audio entertainment.Together,they recorded 5 to 13percent revenue CAGRs from 20

255、05 to 2020.By comparison,the global economy expanded about 3 percent a year during the same period.20 For these arenas,the growth driver of the market was often an expansion of existing demand brought about by digitization and associated globalization.In 2020,60 percent of revenues earned by the com

256、panies in these arenas came from outside their home countries.Companies in the second category achieved rapid growth by launching novel categories of products or services,taking shares from existing markets.21 While companies in the first category used technology and business model step changes to a

257、ccelerate growth in existing industries,those in the second category created new industries,which captured growth by eating into the demand from existing markets.These arenas include cloud services,consumer internet,e-commerce,and EVs.Their revenue grew at a 13 to 33 percent CAGR from 2005 to 2020.I

258、n this group,digitization often created a superior value proposition.The worldwide adoption of internet connectivity allowed e-commerce players to more seamlessly connect buyers and sellers across the globe,providing the opportunity for customers to purchase goods anytime,anywhere with their electro

259、nic devices,rather than through traditional physical retail channels.Digitization also transformed video and audio entertainment,and streaming in particular,by shifting media consumption from movie theaters and physical CDs to homes and mobile devices.Players were able to offer the added flexibility

260、 of content options and scheduling to consumers.We further discuss the importance of digitization later in this chapter.We have discussed the three elements of the arena-creation potion:a technological or business model step change,escalatory investments,and a large or growing addressable market.We

261、observed that the combination of these three ingredients,over time,leads to the formation of arenas.Next,we expand on the new competitive game unique to arenas when these three ingredients coalesce,which we call an escalatory mode of competition.The three ingredients result in an escalatory mode of

262、competitionArenas produce a unique competitive tusslean escalatory mode of competitionwhich results in high growth and high dynamism.Escalatory competition is the industry-level consequence that occurs when the three potion elements come together,resulting in individual companies facing escalatory i

263、nvestment incentives.As alluded to above,it is characterized by arms-race-style contests in which players continually invest in their products,advertising,and operations because a technological or business model step change has disrupted the industry and unleashed latent demand.18 future arenas in d

264、etailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion44The next big arenas

265、 of competitionAs arena companies invest more in capabilities and the quality of their products improves,their profit eventually rises.They achieve this by increasing customers willingness to pay(with product improvements or advertising,for example),by reducing costs(by making step-change improvemen

266、ts in customer acquisition costs,for instance),or by growing volumes(for example,by leveraging network effects).Further,advancing capabilities tends to allow companies to expand their economic catchment zones:they can now sell products and services beyond old boundaries of geographies or categories.

267、The competitive landscape changes as an arena moves up the S-curve of technical capability and adoption.Initially,the possibility of translating innovation to better capabilities and rapid market share can pull in new entrants at the beginning of the S-curve.Escalatory competition then tends to occu

268、r during the phase of rapid growth.This movement of an industry along the S-curve marks high levels of growth and competitive dynamism with major market share shifts,both of which are hallmarks of an arena.Eventually the escalatory investment dynamic can put leaders out of reach in the plateauing ph

269、ase of the S-curve as new market players may find it increasingly challenging to compete with the capabilities that incumbents have developed,limiting the number of players,although they could continue to compete vigorously with one another.There are two other general modes of competition.Simple com

270、petition features low barriers to entry and minor competitive advantages.Mature markets competition occurs when a few large players capture a significant portion of market share.What distinguishes escalatory competition from the other modes is that players are required to keep improving product qual

271、ity,enabled by new technologies and rewarded by large addressable markets,intensifying the battle for market share.To compete for or even maintain market share,investments and capability-building must be continual;players that do not match the velocity of investments would eventually be unable to co

272、mpete.Other modes of competition do not result in this kind of escalatory dynamic(see sidebar“The differences between the general modes of competition”).18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybers

273、ecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssionTo compete for or even maintain market share,companies need to continually increase investments and improve their capabilities.45The next big arena

274、s of competitionSidebar:The differences between the general modes of competitionThree general modes of competition demonstrate why escalatory competition is different and is characteristic of arenas.In the first mode,simple competition,barriers to entry are low and individual players cannot unilater

275、ally move prices.This is the case with a neighborhood laundromat or locksmith:a minimal investment is required to enter,the technology is well understood,there are many small players,competition is high,and the competitive advantages,if they exist,areminor.The second mode,mature markets competition,

276、is a model in which a few large companies have captured a significant portion of the market share.This often occurs at the plateauing end of the S-curve,where technological performance or adoption reaches maturity.New rivals are limited by high barriers to entry like a minimum efficient scale or hig

277、h capital investment.In this mode,the parameters of the competitive game seem settled for some time,with established business models as well as physical or intangible assets and capabilities.A prominent example is the long-haul commercial airline industry,where high levels of up-front investment in

278、aircraft are necessary to operate at scale,while regulatory requirements and limited landing slots constrain the entry of new players.As a result,competition tends to revolve around pricing shifts.Under mature markets competition,the market tends toward equilibrium,although competitive escalations,t

279、echnological or business model step changes,or both can disturb thatequilibrium.The third mode,escalatory competition,is characterized by an arms-race dynamic in which players continually invest to advance their capabilities.In his 1991 book Sunk Costs and Market Structure,the economist John Sutton

280、presented a theory that helps explain the difference between mature markets competition and escalatory competition.He asserts that company investments can be described as either exogenous sunk costs or endogenous sunk costs.Exogenous sunk-cost investments are those that any player needs to make to e

281、nter the market.Examples include the cost of building a factory or of setting up a logistics and distribution network,or the heavy capital investments required in the commercial airline industry.Endogenous sunk costs are fixed investments that improve long-term profit by reducing cost or increasing

282、customers willingness to pay.These investments are classified as endogenous as they tend to depend or build upon investments already made.Think of product improvements or marketing campaigns that allow companies like Apple or Samsung to maintain the price of their products,or a process innovation th

283、at optimizes production performance(for example,investments by Intel,TSMC,or Nvidia that permit the company to efficiently produce at smaller nodes).The cost savings that companies derive from economies of scale are typically the returns from endogenous sunk-cost investments.Escalatory competition o

284、ccurs when markets are suited to endogenous sunk-cost investments.In such cases,incumbent companies will keep investing in R&D,marketing,or capital expenditures.As a result,current players advance their capabilities and can even expand to other markets.The most dynamic competitively escalatory indus

285、triesand hence arenasare often found at the beginning of the S-curve,when technological or business model step changes occur,or in the succeeding,middle phase of rapid growth in the S-curve.For example,we observed competitive escalatory dynamics in the consumer internet arena,especially in the early

286、 years of Meta as the company continued to invest in capabilities and expanded demand from 2005 to 2020.Acquisitions made by large players are sometimes signs of mature markets competition,so Metas acquisitions of WhatsApp and Instagram might have suggested that the consumer internet arena was reach

287、ing an S-curve plateau.But we also see innovations that create new dynamism:TikTok,for example,started to meaningfully compete in the consumer internet arena after it launched in China in 2016 and expanded internationally in 2017.By 2020,TikTok had more than 1 billion users,while Facebook had almost

288、 2 billion.New business models and redefined industry lines may produce the arenas of tomorrow.We discuss this further in chapter 3 and in the compendium that follows it.Other industries,including long-haul commercial air travel,also underwent shifts in competitive modes before our 200520 focus peri

289、od.This market featured rapid innovation,high investment,and substantial market share reshuffling before a series of mergers and acquisitions led to the current stage of quality,especially for the largest players.18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnic

290、al appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion46The next big arenas of competitionObserving the potion in the arenas of todayIn this

291、chapter,weve described the three ingredients of the arena-creation potion and explained why they result in high growth and high dynamism.In this section,we explore the importance of digitization in enabling the rise of the three potion ingredients and how these ingredients coalesced to create except

292、ional growth and dynamism in each of our arenas of today.We also explore metrics that could have signaled the emergence of these arenas(see sidebar“Early markers of arenas”).Sidebar:Early markers of arenasBeyond the arena-creation potion,we also explored metrics,such as capital flows,valuations,and

293、revenue growth,that could signal the presence of arenas in their early stages.We discovered that these early markers varied in reliability but were nevertheless helpful in pointing to potential areas where arenas could emerge when they supplemented the three potion ingredients.What would these metri

294、cs have told us in 2005 about arenas in their infancy?We examined the following(Exhibit):Venture capital.A majority of VC flows60 to 70 percentwent to arena-linked companies,but just four arenas drove this large share:biopharmaceuticals,consumer internet,semiconductors,and software.Most arenas recei

295、ved less than 3 percent of the total flows of venture capital in any given year from 2003 to 2007.Heightened value expectations.We might expect valuations(measured here as the ratio of enterprise value to net operating profit less adjusted taxes,or NOPLAT)to predict arena emergence.We did find evide

296、nce that in any given year from 2003 to 2007,the majority of arenas were in the upper half of the distribution of industries for valuation multiples.Only biopharmaceuticals had multiples that were consistently lower than industry medians.We also looked at the overall EV/NOPLAT multiples of arenas,wh

297、ich were generally higher than those of other industries in this period.Revenue growth.By definition,arenas had higher revenue growth than the economy over the 200520 period.We also examined year-on-year revenue growth for each arena in the years around the beginning of our period of analysis,from 2

298、003 to 2008.As expected,we found that a majority of them grew faster than our overall sample.These investment markers were telling indicators for several candidate arenas and helped guide us in estimating the arenas that might eventually emerge.However,like all predictive markers,they had limitation

299、s.18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssi

300、onDigitization has been a primary force in expanding the number of industries where an escalatory competitive dynamic could develop.47The next big arenas of competitionSidebar:Early markers of arenas (contiunued)ExhibitMcKinsey&CompanyDouble counting of fows occurs in several instances where multipl

301、e arenas apply to one deal(eg,a payment start-up for e-commerce platforms would be counted in both payments and e-commerce).Defined as ratio of enterprise value to net operating profit less adjusted taxes(EV/NOPLAT).Benchmark for venture capital is at least 3%of total fows;for valuation,the EV/NOPLA

302、T multiple for 57 industries;for revenue growth,the average of the total sample rate for that year.Source:PitchBook;McKinsey Value Intelligence;McKinsey Global Institute analysisInvestment and revenue metrics during years when 12 industries emerged as arenasMarkers may point to a high likelihood of

303、arenas forming.Revenue growth throughfollowing year,%200320052007Greater than or equal to benchmarkLess than benchmarkVenture capital investment,$billion200320052007Valuation,multiple200320052007Cloud servicesBiopharmaConsumerelectronicsConsumer internetE-commerceElectric vehiclesIndustrialelectroni

304、csInformation-enabledbusiness servicesPaymentsSemiconductorsSoftware0.81.11.11.11.016328241426.831.123.224.327.44.56.35.67.29.82392325619.517.916.416.715.1Benchmarks1.11.31.82.02.51461417121.319.820.7 20.919.83.03.64.45.15.51251421520.3 24.2 20.9 20.222.12.94.211.47.47.026192926225.636.230.127.731.3

305、0.20.41.91.41.03934112693622.921.620.019.519.70.10.20.21.00.8n/a20474n/a0.81.31.21.62.02161622125.321.622.7 20.917.80.80.91.51.52.11114820119.719.625.424.418.70.90.71.61.52.816515111156.3 48.6 48.8 24.428.23.03.12.83.03.235312101041.820.0 20.018.418.711.713.718.920.0 26.515920241625.427.421.523.124.

306、30.51.01.23.63.4291012724.623.723.223.719.8Video and audioentertainment18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo gamesRo

307、boticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion48The next big arenas of competitionDigitization enables network effects and globalizationDigitization has been a primary force in the simultaneous rise of the three potion ingredients by expanding the number of industries where

308、an escalatory competitive dynamic could develop.For example,brick-and-mortar retailers face high hurdles to reducing unit costs through investments.A traditional retailers marketing spend is only effective in the physical catchment of the stores,but an e-commerce retailer can spend into a much less

309、constrained addressable marketNetwork effects,which increase the value of a product or service as more people use it,were accelerated by digitization in many arenas,including consumer internet,e-commerce,consumer electronics,and software.For example,social media companies networks become more valuab

310、le to users as they add more contacts on the platform.Search engines become more accurate and more valuable as more users engage with them and generate data that can be used to improve search results.E-commerce marketplace platforms have a two-way network-effect dynamic as more merchants increase th

311、e platforms value for customers and vice versa.For consumer electronics and the underlying software that runs them(such as iOS and Android),a mutually reinforcing network effect connects developers and users:more users entice developers to produce more applications,which in turn attracts moreusers.G

312、lobalization of some industries was also a consequence of digitization.Products and services that would traditionally have local or regional reach are now accessible anywhere.This is particularly obvious for internet-dependent arenas,such as cloud services,consumer internet,e-commerce,and software.I

313、n the video and audio entertainment arena,even before streaming became commonplace,globalization had already expanded consumers ability to access media,as seen with K-pops rise to international prominence.Globalization also uniquely influenced the information-enabled business services arena by spark

314、ing accelerated growth in the knowledge economy,which prompted companies in this area to boost their investments in capabilities to address a newly global addressable market.The three potion ingredients in the arenas of todayHere we examine how the three potion ingredients have contributed to creati

315、ng todays arenas,discussed in descending order of 2020 revenues.Industrial electronics.This arena consists of two groups of companies:contract manufacturers,such as Foxconn,Jabil,and Flex,and OEMs,such as Panasonic and Schneider Electric.For contract manufacturers,the large-scale outsourcing of manu

316、facturing was the significant business model step change that made this industry an arena.High-revenue players,such as Foxconn,benefited from the manufacturing outsourcing of big brands,such as Apple and Sony.As a result,contract manufacturers often escalate investments in capital expenditures in li

317、ne with growing manufacturing capacity and in R&D to build capabilities as they meet demand.We can see the escalatory nature of the capital investments by the largest contract manufacturers(Exhibit 13).From 2005 to 2020,Foxconns outlays were associated with higher revenue growth than was the case fo

318、r its two closest competitors.In 2005,Foxconn had more revenues than Jabil and Flex,and it devoted a high share of revenues,5 percent,to capital expenditures.Jabil and Flex spent 3 and 2 percent,respectively.Foxconns continued customer commitments allowed it to continue this high allocation of capit

319、al expenditures as its competitors trailed behind:Jabils capital expenditure allocation reached 5 percent of revenues only in 2015.Foxconns revenues continued to outpace those of competitors,and by 2020,the company spent only 1.2 percent of revenues on capital expenditures(capital expenditures still

320、 grew,but not as fast as revenues),while Jabil spent 3.6percent of revenues.18 future arenas in detailArenas of todayArena-creation potionArenas of tomorrowTechnical appendixEVsDigital adsSemiconductorsShared AVsSpaceCybersecurityE-commerceAICloud BatteriesModular constructionStreaming videoVideo ga

321、mesRoboticsNon-medical biotechFuture air mobilityObesity drugsNuclear fssion49The next big arenas of competitionExhibit 13McKinsey&CompanyCapital expenditures cumulative starting 2005,10-year straight-line depreciation applied.Source:IDC;McKinsey Value Intelligence;McKinsey Global Institute analysis

322、3 contract manufacturers revenue and capital expenditures,200520Revenue,$billionCapital expenditures,cumulative,$billionFoxconns capital investments have been accompanied by rising revenues.024681012025507510012515017520020052020FoxconnIn 2020:$190.7 billion revenue$11.5 billion cumulative spendingJ

323、abil$27.3 billion revenue$4.9 billion cumulative spendingFlex$24.1 billion revenue$2.8 billion cumulative spendingTo some extent,the capital expenditure investments by the contract manufacturers were as much about boosting quantity as quality,and less escalatory in that sense.22 For OEMs,the increas

324、ing digitization of physical devices and equipment was a technological step change that spurred growth.In this case,OEM players escalated both capital investment and R&D to develop novel manufacturing processes and the software embedded in these digitally enabled products.For example,Panasonic annou

325、nced in 2006 that it would stop manufacturing analog televisions and concentrate on digital televisions.Siemens invested about$10 billion throughout the 2010s to strengthen capabilities in its Digital Factory.23 Increasing demand for downstream products raised revenues for these OEMs as well as the

326、revenues for upstream electronic components produced by contract manufacturers.The industrialization of developing economies accounted for a large part of the demand growth in this arena.In our sample,this arena was the largest by revenues in both 2005($389 billion)and 2020($987 billion).50The next

327、big arenas of competitionE-commerce.A business model step change enabled the e-commerce arena as retail sales increasingly took place online instead of in physical stores.This was made possible by the growing penetration of personal computers,mobile devices,and internet connectivity.E-commerce playe

328、rs escalated investments in physical distribution networks to improve delivery cost margins and delivery times,increasing customer satisfaction and their value.Players also escalated investments in marketing to acquire more customers,as scale gives companies more purchasing power to negotiate favora

329、ble terms with suppliers.Marketplace and platform players further escalated these marketing investments to acquire both customers and merchants,which enables a mutually reinforcing network effect:customers find more value in a platform with many merchants and vice versa.This network effect is an imp

330、ortant part of Amazons“flywheel effect,”which incorporates escalatory investments in pricing and customer experience.24In market size and growth,the e-commerce market disrupted the already large traditional retail market,whose revenues grew from$1.2 trillion in 2005 to$2.5 trillion in 2020,a growth

331、rate of 5 percent.Meanwhile,e-commerces revenues grew from$15 billion in 2005 to$890 billion in 2020,a 31 percent growth rate.E-commerces share of total retail sales in the United States was 2.5 percent in 2005.By 2020,it was 15 percent.Consumer electronics.The evolution of mobile phones into smartp

332、hones was a technology step change in this arena that resulted from escalatory investments in R&D aimed at integrating multiple new technologiesincluding semiconductors,digital displays,cameras,batteries,and software operating systemsinto one compelling solution.The shift to smartphones also expande

333、d mobile phones value beyond simple communication tools to multipurpose devices,creating software ecosystems.The emergence of these software platforms created a business model step change:the arrival of application stores and application revenues.Apple launched its application store in 2008,and Google introduced its own in 2012.To acquire customers for their platforms and build brand loyalty,playe