We wanted flying cars, instead we got 140 characters. —Peter Thiel
Peter Thiel was recently quoted as saying you can either invest in bits or atoms, his opinion being that there are too many bits companies right now (WhatsApp, SnapChat, etc.) and not enough atoms companies (Tesla, SpaceX). Generally speaking, I would agree—a lot of capital is pouring into digital (mobile and social in particular) and not enough into infrastructure (water, energy, transportation).
However, these two sectors are not mutually exclusive. The most interesting start-ups seem to sit at the intersection of the two—they use bits to manipulate atoms. Think about Lyft or Uber, which have changed our model for transportation and may ultimately change the structure of car ownership. The same can be said about AirBnB, which is disrupting the hotel industry. These all are enablers to a more asset-light life.
The really interesting questions are how you use bits and what is their inherent ability to scale to address the large, complex problems of atoms, which tend not to scale. In energy, smart grids have this potential. The companies that combine bits and atoms to build smart feedback loops (a Nest thermostat with mostly bits but also some atoms, for example) are the ones that may end up having the biggest, most advantageous effect on energy consumption.
The hardest problems are always atoms—they exist in reality (climate change, food production, etc.). The bits are just tools to solve these problems. At the end of the day, bits without atoms are really not that interesting.