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Crafting a story based on my readings                  View this email in your browser

Dear avid readers,

Here is what I read from February 13th to February 27th 2018.
 

Strategy and Business Models in the Entrepreneurial Age

👓 In my previous digest, I surfaced the value of network effects in creating successful companies. Ultimately, some of these companies became today's monopolies. 
 
So there is a belief that, in order to curtail the power of monopolies, antitrust regulators should look at ways to reduce the network effects. However, Timothy Taylor argues that network effects are not necessarily limited to the digital world and have existed for a long time. Hence, maybe the increased power of such network effects (including data network effects) is over-hyped, and ultimately it is execution itself that creates successful companies. In this case, regulators should not fall for slogans.

🎩 One struggle regulators face is in identifying abusive anti-competitive practices, which can be masked by the perceived benefits they bring to consumers, such as Google's recent moves to block certain ads. This is a paradox hard to crack, writes Ben Thompson. As complex as it might be, people are willing to try. George Soros is believed to be soon on the path of investing more money in tackling monopolistic behaviour. Charles Duhigg wrote an essay against Google's practices, drawing parallels to Standard Oil in the early 1900s and Microsoft in 1990s. Even Bill Gates seems to agree that some tech companies today are basically inviting government intervention, particularly in Germany and lately also in the UK.

⛓️ Chris Dixon argues that such monopolistic practices (abrupt shifts from cooperation to competition) are ultimately a sign of companies reaching the top of the network-relationship S-curve. Regulation is not necessarily the answer. It is the technical creativity and new incentives design of the decentralised web 3.0 (enabled by cryptonetworks) that will ultimately create new winners.

📉Not necessarily related to decentralisation, but a new Innosight report finds that half of today's S&P 500 companies will be replaced in the index in 10 years time. The average lifespan of S&P 500 companies is set to halve by 2027, to a minimum of 12 years. A mix of M&A, increasing private equity activity and new competitive fast-growing companies will make this happen. McKinsey's 2018 Global Private Markets Review covers the ever-rising private capital markets, leading to mega-funds able to ensure consistency at scale. An even more interesting analysis from Stephen Gecchetti and Kermit Schoenholtz attribute the rise of private equity markets to the shift from financing tangible to intangible capital.

Tech, Policies and Misdemeanours

👷  So what other reasons for tackling monopolies, if their actions are creating customer value? Monopolistic markets can lead to rising concentration in labour markets, meaning a decrease in the number of employers competing for workers. This breaks the supply-and-demand model of the labour markets, which contributes to decade-long stagnating wages, despite everything else booming, finds Noah Smith. This could possible have an impact on the divergence between labour productivity and average wages post 1970, as identified by Anna Stansbury and Lawrence Summers.

👐Accenture's Technology Vision 2018 report predicts that companies of the future will need to adapt their business models to improve the way people work and live. An obligation to engage with society differently, creating a new enterprise social contract. Esko Kilpi illustrates in this essay one aspect that companies must understand about the future of work: the technology-enabled, post-industrial work will be better understood by re-adopting the craftsmanship lens.

🏫 Universities such as Harvard, MIT, Stanford are introducing new courses that aim to bring medicine-like ethical foundation into computer science and artificial intelligence. Understanding the social ramifications of technological products could better shape entrepreneurs and policymakers to navigate the digital future. No more breaking things while moving fast. Stanford even published a case-study about the "epic misbehaviour at Uber - governance gone bad". Tech-dedicated Singularity University closed a $32m new funding round, which will be used to expand its services globally. For more case-studies for the academic curriculum, we recommend Wired's recap of Mark Zuckerberg's past two years. Lesson learned the hard way.

Healthy Entrepreneurial Ecosystems

🇨🇳 GE's Global Innovation Barometer finds that corporate multinationals are still better placed to drive global innovation, Asia and emerging markets are gaining increasing confidence in driving it, while majority of CEOs see protectionist policies as somewhat desirable. Europe continues to be inward looking, while China's aspirations are growing. As per The Economist, China is now catching up with U.S., and at current development pace, it is 10-15 years away from reaching tech parity with Silicon Valley. Christina Larson's essay explores how China has shifted from imitation to innovation, in its quest to become a global tech superpower.

🚧  As China marches forward with its government's 2030 strategic plan on artificial intelligence, U.S. seems to be stalling, and the aggressive anti-immigration programme is already leaking talent to Toronto, London, Beijing. Even more worrying, the U.S. administration Budget for 2018 seems to be cutting the science and tech research funding by 15%. The rising trend of digital-nomadism (including digital-nomad visa programmes), will however empower talented employees to workaround these nation-state barriers.  

🗳️ Dropbox files for IPO. Revenues growing at 31% y-o-y. Can its consumer product strategy succeed? Ben Thompson from Stratechery delves into it.

📽️ China's Baidu submits draft legislation for IPO of its video streaming (Netflix-like) business iQiyi. Its content costs is growing at 82% yearly.

🏢 An essay about the rise and ambitions of WeWork, the co-working real-estate company that brands itself as a tech startup. And a counter-argument saying that it is actually counter-productive to work from shared office spaces. At least if you're trying to instil an unique culture to your startup.

FinTech snippets

🔌On Open Banking and FinTech Collaboration
U.S. takes one more step towards Open Banking, with the Financial Services Information and Analysis Center having just released new technical recommendations for data sharing (Durable Data API specs). This could be a foundation for PSD2 equivalent in the country. The Banking Industry Architecture Network (BIAN) published updated version of its standardised global IT architecture model, which provides consistent guidelines to banks and software developers for creating and implementing APIs into the banking ecosystem. Asia is ready for Open Banking, including full regulatory support. What's lacking are guidelines and frameworks, presents this IDC Financial Insights infographic. (BankingTech link). In the meantime, collaboration:
         - U.S. Bank teams up with digital auto lending startup AutoGravity
         - Cross River Bank teams up with loan risk management startup PeerIQ
         - BBVA U.S. teams up with digital freelance account provider Azlo 
         - Bank of America teams up with tech behemoth Amazon for merchants lending (rumoured). Actually, this one is the other way around, as it seems Amazon is re-assessing its credit risk exposure. Scaling back its banking ambitions.

📲Challengers - From tech giants to new bank entrants with a licence 
Maybe Amazon doesn't want to be a bank, but the voice platform of banking. Hence its co-investment along with other banks into children financial education startup Greenlight Financial Technology. And Apple Pay, despite making progress, still has a long way to go, with just c. 16% penetration within iPhone users, says Loup Ventures. While Google is still struggling with its ecosystem fragmentation, makes progress by rebranding Android Pay in Google Pay. So if tech giants are still looming large, who is really raising the threat levels for banks? Cécile André Leruste of Accenture identifies Challenger Banks (fintech startups with a banking licence, unencumbered by legacy tech) as the main threat. This is a view confirmed by The Economist, which has profiled UK's digital challenger banks quest on taking upon the incumbents. But make no mistake, digital disruption does not necessarily mean no physical branches. Metro Bank's hybrid business model, which is re-defined branches complemented by the most modern technology, proves that it can sustain fast growth and profitability - which it has posted for the first time ever. Ultimately, it is the best possible customer experience at scale that wins.

Ultimately, these dynamics lead to disruptive innovation, which as per Clay Christensen means products that target the lower end of the market - and hopefully one area they will fix is the stubbornly high cost of remittances. Annual cross-border remittances now stand at $600 billion, with three quarters flowing to low- and middle- income countries. That is 4x the amount of total development assistance worldwide. Of these flows, $30 billion represent the costs of sending the money, so 5%. One reason for these high costs - a single web or mobile finance transaction now crosses an average of 38 different technology systems, compared with 26 five years ago. Education and competition, through technological innovation, can reduce this. Very good read!

Until next time, a personal note

👀 I would be off for the next couple of weeks, as I am about to become a father. 👨‍👨‍👧
 
Handing over the baton for the next edition to my colleague, Ben Robinson. I might interrupt my offline time-off to read his edition!  
 
Until next time, here's to crafting a life! Beautiful essay!
Would love to hear your thoughts on Twitter, @DanColceriu.

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     My name is Dan Colceriu and I hope this reading was rewarding. Any opinions expressed here do not represent financial or investment advice. Also, they represent my personal view, and not my employer's, which is in no way associated with this email. 
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Copyright © 2018 a p e r t u r e, All rights reserved.


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