Of the world’s top 20 companies by market cap at the end of 2005, only four remained at the top as of November 2024. Most of the companies that had displaced the powerhouses of 2005 belonged to a unique category of industries that we call arenas of competition. Arenas have two defining characteristics: they capture an outsize share of the economy’s growth and the market shares of the companies within them change hands at a much higher rate.
In short, arenas are the centers of innovation and value creation that transform our daily lives and reshape the business world. For investors and CEOs, being able to distinguish arenas from non-arenas helps focus energy on where the business landscape is changing and where there are more profits and revenues to be earned.
Understanding today’s arenas
Looking back over the last two decades, my colleagues and I at the McKinsey Global Institute first identified 12 arenas that emerged from 2005 to 2020, including e-commerce, biopharma, electric vehicles, software, and consumer internet. Altogether, these arenas tripled their global GDP share from 3 to 9% over that 15-year period. And their revenues grew at double the rate of non-arena companies, while their market capitalization grew almost three times as much. They generated $55 billion, or 9% of total global economic profit in 2005. By 2019, arenas were generating $250 billion—half of total global economic profit.
Arenas stand out for their different style of competition marked by rapid escalation in investment: 65% of US business R&D spend went to arenas and adjacent industries in 2020. Arenas were also fertile ground for new entrants to grow. In 2020, 33% of arenas’ total market capitalization was held by companies that had been “outsiders” in 2005. Another identifying feature: arenas are more likely to hold the world’s largest companies. In 2020, 15% of arena companies had market caps greater than $50 billion, compared with 9% for non-arenas. They also tend to be more global. Half of arena revenues were generated outside companies’ home regions versus 42% for non-arena companies.
Companies headquartered in the United States and Greater China led the pack in the 2005-2020 arenas. US companies accounted for a substantial majority of global market cap (~65%), while Greater China (~15%) had the second-highest representation. European companies had a much higher share of global market cap in non-arena industries than they did in arenas.
The arenas of tomorrow
We used our understanding of the arenas of today to try to pinpoint the potential arenas of tomorrow. We developed a list of 18 arenas of the future, ranging from AI software and services to cybersecurity, from future air mobility to drugs for obesity, and from robotics to nonmedical biotechnology. Together, these potential arenas could generate $29 trillion to $48 trillion in revenues by 2040. And they could generate $2 trillion to $6 trillion in profit by 2040. Their collective global GDP share could increase from 4% today to something in the range of 10-16% by 2040.
We identified three main arena creation “potion” ingredients that significantly increase the likelihood an industry could become an arena of competition: business model or technological step changes, escalatory investments, and a large and/or growing addressable market. Looking for these “potion” ingredients helped us pinpoint potential future arenas.
The 12 arenas of today created sweeping change over the past 20 years. But buckle up— the arenas of tomorrow could bring about even more change in how we use data, approach healthcare, transport people and goods, and communicate.
We may soon be able to catch a vertical takeoff and landing vehicle at our local vertiport, and commute in an autonomous shuttle instead of driving our own car. Our health may be transformed by wellness treatments tailored to our own DNA or by widely available, low-cost medication that controls obesity and related conditions. Our houses may be built quicker, at lower cost, and more sustainably through modular techniques.
But swing factors such as geopolitics, AI adoption, and the pace of the energy transition will have a big role in determining which arenas eventually emerge and thrive.
Arenas are closer than you think
Arenas may be closer than you think. Recognizing the early signs that an arena may be forming will impact companies and investors in different ways. If you’re in an arena, how do you compete and win? If you’re a customer, what new capabilities can you use? If you’re a supplier, what are the new opportunities and risks for you? If you’re at risk of being disrupted, how can you pivot and protect your business? If you’re an investor, how can you catch the waves at the right time?
As the global economy continues to evolve, arenas will undoubtedly remain at the forefront of innovation and growth. Their disruptive potential and ability to transform industries make them a focal point for businesses, investors, and policymakers alike.
By embracing the transformative power of these dynamic industries and adapting to the changing landscape, leaders can position themselves for success in the rapidly evolving world of tomorrow.