A Thought Experiment on the Impact of COVID-19

Kristin McDonald

By Kristin McDonald and Vic Singh

We’ve created a matrix brainstorming potential impacts and opportunities resulting from the COVID pandemic: access it here.

The “future” is the result of a collection of historical and present-day inputs. When a large shock occurs, it heavily influences and alters that course in a number of unpredictable ways, often rippling through tiers of 1st, 2nd and 3rd order impacts that together have the potential to set us on another course entirely. Even nuanced changes can balloon over time to represent dramatic alterations to our economy and the way we lead our lives.

Over the next decade, the long-term impacts of the COVID-19 pandemic will start to materialize. The intricacies of the global economy and the often nonlinear nature of technological development means it is difficult to speculate now as to what that future will look like, except to say that it will be radically different from a course not altered by a global pandemic.

At Eniac, we have been developing a framework to help us think through the short and long term impacts of the pandemic on the biggest sectors of our economy, and by extension what opportunities those changes may create for investors and entrepreneurs. We are sharing the result of that thought experiment here with the hope that we can contribute to a discussion about what the future holds.

We challenged ourselves to go beyond sweeping generalities that were so broad as to almost certainly be accurate, and to instead think deeply and granularly about the potential impacts.

This means that a lot of this will likely turn out to be plain wrong.

But we believe this approach provides a better groundwork for our own thought process, and hope the result is a more valuable contribution to the discussion

Framework for Our Analysis

We wanted to establish a way to systematically think through the impacts of COVID in different sectors. As we brainstormed, we began to focus on two concepts that we believe are important for understanding the impact of the pandemic: derivative effects and directionality.

Derivative Effects

Going into this analysis, we thought the first order effects (which we define as changes that are a direct result of the pandemic) were fairly obvious — increased remote work, telehealth, digital entertainment, online education etc. To be clear, we’re not talking about the immediate spike in these categories that occurred during the quarantine, but instead the fact that after quarantine ends many of these trends will continue to accelerate faster than versus pre-quarantine levels.

However, the fact that many of these trends are currently at their apogee in both investor interest and consumer adoption makes it difficult to invest in them even if long-term secular growth is expected to continue. So instead, we find ourselves more intrigued by the rippling impacts we’ll see in response to the first order effects — what we call the derivate effects.

For example, as remote work becomes more mainstream (a first-order effect), we will see the need for an enterprise-grade remote office, meaning business processes like HR, security, sales, and compliance all operating effectively remotely (second-order effect). This could result in a permanent increase in certain bandwidth usage, which may require further investment in network infrastructure, and the need for increased grid reliability (potential third-order effects).

We found that what we view as first-order effects are often customer-driven changes (with ‘customer’ including both consumer and enterprise), while derivative effects are often the tools (the “picks and shovels”) and infrastructure (the “rails”) needed to support or enable the first-order effects.

Directionality: Accelerators and Deflectors

During our analysis, it became clear that many of the impacts we were identifying represented secular trends that were already well underway, but which were now being accelerated by dramatic shifts in cost structures and customer behaviorisms engendered by the pandemic. Trends like telehealth, remote work and ecommerce fall into this bucket of “accelerators.”

The surge of demand in many of these categories will obviously decrease as the acute pressures of COVID and the quarantine fade. However, the adoption curve will have been permanently advanced forward versus pre-COVID levels, and in many cases structural barriers to rapid growth will have been greatly reduced.

We also saw numerous sectors whose growth trends were thrown off course by the pandemic, and instead accelerated on a new path — what we’re calling “deflectors.” For instance, offshore manufacturing growth will likely get deflected into onshoring as companies and governments move to reduce supply chain risk.

Our early ideation around the concepts of accelerators and deflectors across industries.

Putting it together: The COVID Matrix

These concepts were used to develop the COVID Matrix. We start with what we saw as the biggest sectors experiencing first-order effects, which we broke into short term (immediate) effects of the pandemic and long-term effects which we think will persist. We then mapped out potential derivative effects of those long-term changes, and categorized them into either accelerators or deflectors.

To further add to the thought experiment, we brainstormed potential solutions that may arise in response to these impacts. We also included examples from the Eniac portfolio for each sector, which represent opportunities we’ve had to see these effects first hand.

The matrix we are sharing can be found HERE.

Row 1 of the COVID Matrix

Our analysis is by no means exhaustive (e.g. we did not discuss sectors like the sharing economy, which has likely decelerated), and the situation will continue to change rapidly, so we wanted to make this a living, collaborative document. We’d love for you to share your own thoughts and analyses and we will plan on continuously updating this matrix.

Overarching Themes

As we built out this framework we started to notice common themes popping up across different sectors. So as a final step to our process we spent time crystalizing those themes and thinking about how to visualize the overlap between sectors.

The largest themes we identified include:

  • Cybersecurity, privacy and compliance — as key parts of our lives are increasingly conducted remotely, we will see an increased need to protect and verify the growing transfer of digital data. Digital banking, healthcare services, and business transactions will require improved identity verification, while an increasingly remote workforce, a growing trend of government surveillance, tracking and data collection, and increased likelihood of remote voting and other governance issues will make data protection and encryption an essential area of investment going forward.
  • Computing — an increasingly digital world means surging internet usage and the ability to collect and use more data. This will in turn make managing connectivity and processing power more important, resulting in greater innovation within quantum computing, chip architecture, and data compression, and an acceleration of the already rapid progression to cloud computing.
  • Energy usage — many of the long-term impacts of COVID will change our relationship with energy. More business being conducted remotely, combined with growing corporate investments in things like autonomy and applied AI, and an increased manufacturing footprint, will all require more energy and more reliable access to it. This encourages innovation around grid efficiency and resiliency. At the same time, less personal travel, more investment in transportation infrastructure, and more proximity-based supply chains may reduce our dependence on fossil fuels. While it is difficult to say whether or net energy usage will increase or decrease, where and how it is used will certainly change.
  • Accessibility —one especially negative impact of COVID may be the acceleration of the US’ already acute wealth inequality. Families have had dramatically different quarantine experiences depending on their socioeconomic backgrounds. For numerous reasons, an affluent family is likely to exit this pandemic relatively unscathed, while a lower-middle class family is more likely to exit unemployed, with more debt, and with children that have fallen behind in their education. Due to systemic racism, those socioeconomic differences also often fall on racial lines, with Black people and other minorities being disproportionately negatively affected by the pandemic. An event which creates such polarizing outcomes has the potential to meaningfully exacerbate systemic inequality in this country. Addressing it means dramatically rethinking our governance, education, healthcare, social benefits, and employment systems so as to be accessible to previously excluded populations. At the same time, the permanent digitization of key sectors will leave vulnerable populations behind, including the tens of millions of Americans who do not have access to broadband. As we transition into a post-COVID world, there will be a growing need to address accessibility and equality in our new economy, or risk leaving a significant portion of the population (and their potential contributions) behind.
  • Autonomy — we believe that a surge in demand in many industries, combined with a simultaneous reduction in labor and the fact that decades of investment in autonomous technologies are now starting to bear fruit, will result in a new wave of R&D and capital spending into autonomy. Manufactures with a renewed sense of the vulnerabilities in their supply chains and a growing factory footprint will be more likely to make the investment into robotics. Trucking and logistics companies facing higher demand combined with an increasing driver shortage will see a better ROI on autonomous and semi-autonomous features. And companies will likely take advantage of their sizable layoffs to invest in autonomous tools such as RPA instead of hiring back up to previous levels.
  • Data Analytics and AI — as sectors like healthcare, financial services, education, and entertainment move online, the data we collect from those interactions will grow exponentially. COVID has shined a new light on the importance of how we track and utilize health related data. That will only increase as more health consultations are carried out online and connected health devices become more prevalent. Scores of new online audiences, engaging in new forms of content, will require new tools to track and measure engagement and to serve ads programmatically. Students being evaluated remotely will have their entire educational record collected and stored digitally. Apply this logic across every sector and it’s clear that our ability to collect, analyze, and leverage data is going to continue to grow exponentially in importance.
  • Infrastructure — with growth in key sectors comes the need to support it via strong infrastructure. On the physical side this means growth in ecommerce, investments in supply chain efficiency, growing energy usage, and potentially large swings in how and where we live our lives (home vs office) puts a spotlight on the infrastructure of transportation, energy distribution, telecommunication and real estate. At the same time, investing in the technical infrastructure and architecture that powers the surge of consumer and enterprise online usage will be important as areas like edge computing, content delivery, devops and transactional databases become more critical.

As we traced the impacts of the pandemic from sector to sector and through overlapping technological themes, we ended up with a chart roughly resembling an ecosystem web. While it is far from a clean artifact, we hope it is helpful for visualizing the overlap between sectors and the common technological themes we saw connecting them.

Our sector ecosystem web, with the overarching themes in the middle and subsectors in the call outs

Final Thoughts

One trend that we saw overarchingly but which did not fit neatly into this framework was the idea of resiliency — born of COVID’s ability to reveal just how fragile our systems really are.

But by dramatically interrupting our technological and economic inertia, the pandemic has also given us the chance to fix those failure points. Herein lies the unique opportunity that characterizes disruption of this scale. If we are forced to rethink and rebuild how our society works, then we have the opportunity to build resiliency into the foundation.

This opportunity feels like a timely one given some of the larger environmental, social, and economic crises that are looming. And it’s possible that the disruption brought by COVID serves as a tipping point for some of the transformational structural changes we need to alter our current trajectory.

For now, we wanted to offer up this thought experiment as a way to spark conversation around some of the more tangible and direct opportunities for innovation as a result of COVID. Our analysis is far from certain and certainly non-exhaustive. What is clear is that a dramatic paradigm shift brings with it the opportunity and impetus for large, structural changes and we are excited to witness and hopefully play a part in it.

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