What Is an Emerging Industry?
An emerging industry is a group of companies in a line of business formed around a new product or idea that is in the early stages of development. An emerging industry typically consists of just a few companies and is often centered around new technology.
Understanding Emerging Industry
It may take years for an emerging industry to reach profitability. Research and development expenses will comprise the bulk of early operating expenses of companies in the industry. Also, marketing expenses will be high because the product or service is largely unknown and unproven, so companies in an emerging industry must convince both investors and consumers that the product or service will be valuable. Investing in an emerging industry is a high risk-reward proposition.
Barriers to entry in an emerging industry can be relatively high because of the level of expertise required to compete in the new field. Ignoring such barriers and lured by visions of fabulous success. However, many entrants will rush into the space in an attempt to gain an early advantage. They will raise money (if they can), hire key personnel, and secure the services of influential advisors. The vast majority of these entrants, though, will eventually discover that they do not have the skills or sufficient funds to bring a product or service to market, and at some point, flame out.
Examples of an Emerging Industry
The world in the mid-1990s knew the internet as an emerging industry. Hundreds of companies formed to try to capitalize on the emerging industry and hundreds failed. Many survived, but we know only a handful of industry kings that lord over the realm today. Emerging industries in the current era—but perhaps viewed as the next evolution of the internet—are artificial intelligence, virtual reality, and self-driving vehicles. Again, only a select few companies with the financial resources and intellectual property are thus far dominating the nascent fields. The biotechnology industry, however, is experiencing such breakthroughs in immunotherapy and gene therapy that it can be considered an emerging industry, or at the very least a sector with growth potential at an inflection point.