Dear avid readers,
This is a long one, so probably best to display it in your browser. Also, if you don't have at least 45 minutes now to carefully read through it (and then maybe a few hours over the weekend to absorbe the whole content), then probably best to leave this email as unread.
I am pleased to keep bumping into great-quality, niched-newsletters. This shows that, independent writers and curators, often a team of one-person or a small group of people, have been able to grab an increasing amount of mind share from the vortex of social media newsfeeds.
This also shows that e-mail as a communication platform is having a big comeback, but also that independent individuals can build self-sustaining businesses in the knowledge economy. Above Avalon describes the model of his Strategy newsletter here (from reaching viability, to the online community, member meet-ups and subscriber support), but also his challenges. In a way, we are probably witnessing an un-bundling of the Strategy consulting houses.
Tanay Jaipuria explores in detail the strategies for monetizing digital content, and this can be a good source of inspiration for all of you out there trying to turn your newsletter into a business.
Personally, at this stage I believe that the value I get out of pushing myself to read more and then writing about what I read is big enough to make this exercise enjoyable!
The main themes of this digest, based on what was published in the past two weeks, are:
1/ If only Bill Gates had subscribed to Mary Meeker's internet strategy digest, Microsoft wouldn't have missed the shift to internet and then to mobile;
2/ If only Europeans had subscribed to Mary Meeker's internet strategy digest, they wouldn't have entered the digital era with no tech platform, like a bunch of cowboys with blockchains;
3/ Are we collectively focusing too much on dismantling today's tech giants, instead of upgrading our cities and social safety nets to unlock the next wave of prosperity?
Bonne lecture à tous!
Strategy and Business Models in the Entrepreneurial Age
Technology without a business model is just a cowboy with a blockchain
📈📉 My colleague Ben Robinson has published a blog post (to which I have also contributed with imagery and also hopefully with inspiration via the content surfaced through this Strategy digest), arguing that in today's business landscape, incumbents' technology renovation projects in the absence of business model renovation may well make things worse because they entrench existing business models based on selling undifferentiated products at the greatest possible level of scale. The article is focused on the banking and fintech landscape, but its relevance is broader than just these sectors. I will take the liberty to quote at large, but please do read the entire article. We keep forgetting that technology in the absence of new business models never changed anything, but the other way around - business models which exploited new technologies are driving real change. The industrial economy was all about scale. Once a company had come up with a winning product, the challenge was to exploit economies of scale as fully as possible.
But these investments in scale in the digital age are quickly moving from sources of competitive advantage to sources of competitive disadvantage. In economic terms, technology has lowered the minimum efficient scale of production to a point that is within the reach of most SMEs. So with a monolithic business structure, diseconomies of scale kick in sooner and are more material (an example of diseconomies of scale sentencing an otherwise successfully managed conglomerate to mediocrity can be General Electric. Few corporate meltdowns have been as swift and dramatic as General Electric’s over the past 18 month, writes Geoff Colvin)
Ben identifies five banking models for the digital age, framed around the size of the demographic a firm wishes to serve and the number of products it offers to this demographic:
1/ un-bundled fintech startup, spotting a niche and using cloud infrastructure to operate at low volumes and using AI to serve small segments of the market. However, the low infrastructure costs are more than offset by high customer acquisition costs, hence it is often difficult to make this model profitable. It is why most of these startups transition to:
2/ re-bundled startups: after finding strong product/market fit, it is logical for it to offer multiple products in order to boost its return on capital by cross-selling and up-selling to its existing clients;
3/ Platforms, which are a scale play, but still underpinned by network effects and empowering the model of unbundled startups to be sustainable, by creating more value in the ecosystem than it extracts.
Charles Fitzgerald writes about cloud computing platforms and scale, pointing that CAPEX spending on cloud infrastructure is both a leading indicator of the ability to compete at hyper-scale and also confirmation of success with customers. If we look at cloud computing platforms, CAPEX is the ultimate form of putting the money where the marketing-mouth is. So it is why, IBM, despite pushing the marketing-pedal on positioning itself as a cloud-computing platform-company, its CAPEX is shrinking in both absolute and relative terms - so in the absence of any clear upward inflection point, it is like saying they haven’t even started to compete here. And once a platform is established as a hyper-scaled platform, it takes a lot of CAPEX to compete, which is why probably Oracle has fallen pray to 'magical thinking'.
4/ The aggregator model is where a firm uses its grip over distribution to introduce the consumer to the right unbundled services, which in turn commoditize the ecosystem players and internalize network effects. However, these aggregators, because of the need to deliver exceptional customer experience, or flaws in the business model, will end up having to become more vertically integrated. (think of P2P marketplace lenders' struggles, or how challenger banks all end up obtaining a banking licence to control the whole value chain).
In other industries, like health insurance, vertical integration can also be a solution to fix status-quo value-chains where the end-consumers are being forced to pay ever-higher prices. Insurance companies have no incentive to negotiate with health-providers to strike deals that actually lower the cost of care across the board, because ultimately members carry the extra cost. Vertical integration of health insurers can actually do more to nudge insurers onto a more sustainable trajectory, argues Isaac Krasny.
5/ The fifth model is the holding company, built for the unscaled world and in a way that confers competitive advantage on the subsidiaries, especially by dint of network effects. In the financial services space, the best example of this holding company structure is Ant Financial, since it has figured out how to recreate the universal banking model for an unscaled world (to leverage data, brand and distribution while the subsidiaries remain narrowly enough focused to remain nimble and adaptive in the face of changing technologies and customer trends).
💢 Created 14 years ago, Ant Financial is before all a tech company that grew to become a financial institution. From a $50bn valuation 2.5 years ago, it has now reached $150bn last month (entering therefore the Top 10 global banks by capitalisation). Holding companies such as Ant Financial can also become more hybrid: holding company for domestic (& large/strategic) markets + ecosystem elsewhere (e.g Ant Financial + Concardis). However, by following Amazon's history of going from partner to rival, we can assume that holding companies will constantly look to replace their ecosystem partners with own offerings. Ant Financial also shows signs of wanting to be underpinned by a platform business, as a strategic technology supplier to the Chinese banking industry, having signed its third deal last month to help local banks with their digital overhaul (in online risk management, fraud prevention, supply chain finance, biometric identification).
📝 To better understand the difference between platforms and aggregators, I recommend Ben Thompson's post. Platforms capture only a minority of the total value of the ecosystem that develops on top of them (Windows, AWS, Azure Cloud) and empower strong and durable businesses to be built on top. It is also why Microsoft is acquiring GitHub: a touch-point with 28 million developers that contribute to 85 million code repositories. As a platform, Microsoft is re-emphasizing its commitment to developers and also brings the Enterprise-level of trust required to unlock further value in this community (while getting access to more corporates in the meantime). Some platforms (Apple Store) also have the ability to intermediate the relationship between third party ecosystem participants and end-customers, hence they are even more powerful. Aggregators (such as Facebook, Google), on the other hand, completely disintermediate third-party suppliers and reduce them to commodities (why the best strategies entail business models that avoid Google and Facebook completely - and this is why Yelp should know better).
📐 Some people forget that a functioning business model (making economics work) is an essential part of product market fit (especially in an environment where customers are getting more expensive to acquire, roughly by 65% increase in cost of customer acquisition over the last five years), writes Tren Griffin. Many businesses today are so reliant on paid product distribution that they retain little or no value from their value chain (the business pays another business a fee for acquiring the customer and may not even own the relationship with end customer or the data generated by that customer), and hence do not produce the required output for investors because over-reliance on paid distribution doesn't scale.
Tren argues that even when business leaders claim they pay nothing to acquire customers, this does not reflect reality, because most probably they refer to the “proprietary product distribution” model, which inevitably has costs (even if they are opportunity costs) that appear somewhere other than in a line in the income statement called “sales and marketing” spending. In other words, modest spending that is usually considered part of “cost of goods sold” is turned into a substitute for marketing spending.
Tren describes how proprietary product distribution channels are also a source of network effects, and hence of competitive advantage (a more efficient traffic and customer acquisition enables greater growth - see Booking.com catching up with Airbnb). It is why we are observing more and more businesses (like Disney) going directly to consumer since they can't take the risk of having a distributor between them and their customers. Tren goes further to explore ways for companies (especially SaaS ones) to create such proprietary distribution channels: 1/ freemium as a way to reduce consumer-friction associated with initial usage and reduce cost of acquisition, followed by value-add monetized services (Dropbox, Spotify); 2/ Community-based proprietary distribution; 3/ Referral; 4/ Content marketing - quality knowledge sharing via blog posts or other media formats as a strategic asset and a way to acquire community members (like investment firms Andreessen Horowitz, The Family).
🎓 Eugene Wai, a former strategic planner at Amazon, writes how one of the most difficult things to forecast is customer adoption rate (especially on long-term). And strategic planning's job is to know what's going to happen in the future as best as possible. Equally important, though, is managing the unhappy point later in the adoption S-curve, when the company experiences a flattening of growth. Eugene is arguing that, after spending so much time on product/market fit, strategists must spend much more time on the problem of product-market unfit. That ceiling where your company's growth curve would bump its head if you continue on the same path, is what Eugene is calling the invisible asymptote.
For Amazon (more specific the Amazon Marketplace business), the critical problem that had to be solved to dissipate this ceiling boiled down to one factor: shipping fees - people hate paying for this, even to an irrational degree. And this is how Prime was born - as a program to remove the consumer's perception of no-value from paying for shipping. While at first the clear focus was on growth to the exclusion of all other things, there is only so long you can go until you need to focus on long-run unit-econonics (Jeff Bezos' way of fix-it-later type of micro-adjustments). Otherwise, the more you sell, the more you lose, and that's not a successful business model.
Today's challenge lies in the fact that not all companies lend themselves to easily identifying such invisible asymptotes. For example, Twitter has probably reached everyone in the world who might like its core text-heavy experience - so chasing user growth is just wasting time because it is the wrong strategy. In other words, Twitter should be a platform, argues Eugene, spurring third-party developers and services on top of its service, and stop trying to be an aggregator like Facebook, who has hit a different ceiling: its massive social graph, previously a blessing, has probably become a curse - because social humans are intimidated by a social graph that conflates everyone they know, so they stop broadcasting. This can also be an example of what Ben Robinson was touching in his blog above about diseconomies of scale.
👥 As Aswath Damodaran notices, the user-based model is still in its infancy and therefore normal for some companies to lose money, but there are flags that can point to a faulty business model. For example, it is far better for a company to be losing money trying to acquire new users, than it is service existing users (the latter signals a bad business model). In the same time, a user-based model, where you can grow cash flows from existing users is more valuable, other things remaining equal, than a user-based model that is dependent on adding new users for growth. Also, for mature companies with established business models, it is better to have a more flexible cost structure (with more variable costs and less fixed costs), while with money-losing, high-growth companies, the reverse is true, since it is the fixed cost portion that yields economies of scale, as the company grows. Bottom line, writes Aswath, it is easy to build user numbers, if you sell a product or service at way below cost, but if your objective is build a long-standing user-based company, you need a pathway to profitability that is defined early and worked on continuously.
🍕 To end this sub-section, I would like to illustrate how an industrial-era company, Domino's Pizza, changed its business model exploiting new technologies. Starting of as a traditional company before the internet era, it is a solid long-term strategy and a strong operational agility at the backbone of the organization (with a close eye kept on the bottom line for good business fundamentals) that made it such a resilient company (critical in their strategy was the understanding of the fact that they are not simply a pizza company, but also a pizza delivery company). Its stock has grown 90x since 2010 (dwarfing those of Facebook, Google, Amazon, Apple), by thinking like a tech startup: customer feedback loop which allowed them to fix core-product issue (since Domino's at some point become a great pizza-distribution company but with an incredibly bad product that got distributed) and also doubling down on convenience (Domino’s was the first company in the pizza delivery industry to offer mobile ordering, which quite literally changed the way people thought about food ordering and delivery).
If only Bill Gates had subscribed to Mary Meeker's Strategy Digest
📊 It is PowerPoint's 30th anniversary, reminds us Steven Sinofsky. What better way to celebrate it than with Mary Meeker's powerpoint presentation: The Internet Trends Report 2018.
But who is Mary Meeker? She is a plain-spoken, unpretentious Midwesterner, who pushed a lot of the 1990s understanding about how to value the new breed of internet companies.
She also believed that "the internet is like a small town where giants companies replace the corner-shops". She was also a big promoter of companies gaining customers at all costs, and monetization will follow - for example her view in 1999 about Amazon:
"My view of Amazon is that it's not just books, it's bits. If two years from now it has 15-20 million customers, and it has their credit-card numbers, and they are happy, then it can make money."
She also understood clearly that it will take a lot of failure to filter the big winners, and the key lies in the business model:
"I think many of these valuations are built on air, but I don't think all of them are. Some of these companies have extraordinarily powerful business models, and they are just at the point of figuring out how to monetize them. Many of them are going to get blown up. I have no doubt about that."
Boy, was she right! You will probably enjoy this archive-essay from The New Yorker about Mary Meeker in the year 1999, a former investment banker and a big bull on the internet companies (she was involved in the IPOs of Intuit, Netscape, Priceline.com, and later on Google). She had first started writing this report in 1995, publishing together with a research associate a 300 page study about the internet, proclaiming email as the killer-app of this new medium (when fewer than 10 million people were online). ⚠️ She was among the first analysts to mention the idea of downgrading Microsoft's stock, while Bill Gates was very sceptical at the time about the internet's possibilities.
Twenty-four years later, 3.7 billion people are connected to the internet (half the world's population) and her report has 294 slides. In the meantime, we had the dot com crash, Microsoft missed both the shift to internet and then to mobile (it is also a reason why, argues Ben Thompson, Microsoft had to pay so much for acquiring the GitHub developers: they lacked a platform with sufficient users to attract developers <-- Excellent, as always). Email, however, through digests like these, is making a comeback. And strategy is arguably even more critically important. It's still Day 1.
I have used Josh Constantine's tweetstorm, Fred Wilson's note and Ben Thompson's daily post (for which you need to subscribe, which you should totally do - it's the best return on your investment in content), to bring out a dissected list of what I thought it is interesting from Mary Meeker's report (this doesn't mean you shouldn't flick through it):
- Crypto had only one slide in the deck
- 0% new smartphone unit shipment growth in 2017
- The amount of data we collectively create is growing at a stunning rate (including the % of structured data as of total data)
- 13% of retail sales are e-commerce (in China, that's 20%)
- Direct-to-consumer retail is booming (enabled by social media which is growing its importance as a referral channel - there are now more than 400 startups looking to replace Procter & Gamble)
- Amazon has become a de-facto "google for product search" (despite lacking a Pinterest-y visual discovery tool)
- China's data advantage - Chinese consumers are more willing to trade-off data for benefits, vs U.S. or European counterparts
- Voice recognition (now at 95% accuracy) has taken off
- The power of platforms which lower transaction costs (Zuora, DocuSign, Adyen), combined with social media targeted advertising, are enabling completely new businesses that serve niche markets
- Freelancing is growing 3x faster than traditional work
- Un-bundling of university-studies, driven by the lifelong learning imperative
- Customer lifetime value (LTV) increasingly being used as a decision making tool
- Ad-supported models are turning to be an acquisition-model for subscriptions
- Various bundling strategies are making subscriptions even more attractive
- Amazon and Alibaba are bundling services with a breadth, speed and price that competitors can't match
- Observed shifts in tech behemoths from commerce platforms to ad-driven aggregators and vice-versa
- Convergence of enterprise and consumer tech: Dropbox a consumer product that is being adopted by enterprises, Slack an entreprise product that gains in adoption by having a consumer grade user experience
- The amount of money raised in startup-funding seed rounds has doubled and valuations have increased significantly
- Tech is also extremely deflationary, lowering the cost of living, except the housing costs which go up because most of the tech-enabled jobs are in urban areas, so it is the poor zoning regulation in the urban real estate that is eating up too many of the gains
- The tech share of MSCI market capitalization mirrors a hype cycle
🎈 Goldman Sachs on why we are not in a tech bubble: "Amazon, Apple and Microsoft have a combined market capitalisation greater than the annual GDP of Africa (54 countries). But technology returns have been justified by fundamental growth and valuations are much lower compared with previous market bubbles. The biggest individual stocks historically have reached a higher share of the S&P 500 than today. Apple is 4% of the S&P compared with 7% for IBM in 1978, 6% for AT&T in 1981, and 5% for Exxon in 2008. Sectors and stocks can dominate equity markets for long periods. Transport remained the largest sector in the S&P for over 60 years (1852 and 1914). While selected 'value' may recover, technology is likely to continue to dominate."
Tech, Policies and Misdemeanours
🏗️ Christoper Mims writes about how the GAAFA companies are enjoying profit margins, market dominance and a competitive moat that, according to economists and historians, suggest they’re developing into a new category of monopolies, and (despite not turning armed guards on striking workers like Andrew Carnegie back in the time), their power still has negative consequences for innovation and competition and this is becoming more evident (like Standard Oil was crushing competitors through vertical integration). One aspect of stifled innovation comes from how, post-GDPR, Google and Facebook dominate the harvesting of user data (since they already have direct consumer relationship and can easily obtain consumer consent. One would say that the price we pay for more privacy is increased monopolistic power). One condition for judging monopolies is how difficult it is for upstarts to challenge them, and Christoper argues that the money these companies have spent building data centers and filling them with hardware and software resemble the telegraph giants, with investments in physical infrastructure so large no upstart could match them. They also benefit from something historically unprecedented: the ability to get users to subsidize them with enormous quantities of free labor (=data creation). Or how Amazon’s rapid growth across all lines of business makes it hard to imagine how it will not eventually become a target for breakup. Ultimately, dominant companies can be either tamed by market forces, new technology platforms or by being regulated as public utilities.
Too much focus on monopolies? ...
🏦 Big, rich and paranoid, U.S. tech giants have reams of data to help them spot, copy or buy young firms that might challenge them, argues The Economist. Four years ago, the paper saw the proliferation of startups like a Cambrian explosion: software made running a startup cheaper than ever and opportunities seemed abundant. Today, that story is much more grim, especially in the consumer internet space. It is probably why the number of early stage startup funding rounds is declining, while the average number of rounds is doubling and tripling at seed and Series A. But this startup-kill zone appears also in the enterprise space, where Amazon, through its cloud platform, has labelled many startups as “partners”, only to copy their functionality and offer them as a cheap or free service (n.b. shifting from platform to holding).
⌛ But James Pethokoukis argues that these are not The Forever Companies. During their heyday, General Motors (1928), IBM (1970), and DuPont (1955) towered over Corporate America in a way Big Tech doesn’t come close to approaching today. These companies still exist, but they are not as relevant anymore. And even in tech, technology markets abound with examples of firms wiped away by technological disruption (Kodak, AOL, Lycos, Altavista, Yahoo!, MySpace, Motorola, Nokia, RIM, IBM, Xerox). This doesn't necessarily happen because companies fail to see new technology platforms, but because companies don’t always make that transition from one technology to the next very well (as Ben Robinson wrote in the post referenced at the beginning of this digest, in the unscaled digital age, the scaled business model is likely to lead to the double whammy of failing to spot new trends and the impossibility of catching up, because scale is so deeply embedded — across company structures, performance metrics, remuneration, processes, employee skillsets, cultures). And as Benedict Evans said, dominance turns to irrelevance faster than antitrust processes can diagnose, pick a remedy, and apply it.
Jerry Neumann's tweet: "The 25 largest companies by market cap every 15 years from 1927-2017. The ones in yellow are those that were top 25 in 1927, or their offspring. Changing the guard is slow, then sudden."
... And not enough focus on new safety nets for a new nature of jobs?
👔 Esko Kilpi has listed ten principles of digital work, human protocols of creating value in the post-industrial world. I took the liberty of transforming his list into an image.
👔 Employers are increasingly relying on atypical jobs (less routine, less stable and for many less well paid), and governments tend to favour the development of these atypical jobs in order to fight unemployment. Since stable, long-term employment with a single employer is no longer the norm for many workers, it means that social insurance systems are not fit for purpose anymore, writes Bruno Palier.
These challenges emphasise the need to build a new social contract between winners in the knowledge economy (the creative class, tech workers) and losers (whose purpose is increasingly to provide low-paid services to the winners), by sharing the profits that are generated by both groups. To better understand the power that the winners of the knowledge economy have over corporations, see Google's recent move to cancel its military drone programs. Tech workers have huge leverage over their employers to drive societal change. The scarcity of their talent acts as an union in itself. Time for other demands?
Three main families of solutions are currently contemplated to face these challenges, which may correspond to the three types of welfare regimes:
* implement a universal unconditional basic income
* improve existing social protection schemes for independent workers
* introduce the flexicurity model, which guarantees high levels of minimum income and universal rights to social services and publicly financed training to all.
🚕 It was therefore refreshing to see how Uber, a platform company working in the gig-economy space, is finally appearing to share the belief that everyone, including independent drivers & couriers, should have the option of benefiting from optimum protection for themselves & their families. Uber's partnership with AXA to offer European drivers who work for the ride hailing service free accident cover, can be an inspiring first step. Combined with income normalisation fintech solutions like Trezeo, it can further inspire regulators for new institutions to further unlock the potential of the gig-economy.
👍 I am a keen follower of Paul Kirby, visiting professor at London School of Economics and lately CEO and Co-Founder at Zinc VC, which builds new commercial tech companies that tackle the biggest social challenges in the developed world. Zinc's programmes are focused on single missions (hello Mariana Mazzucato), rather than metrics. Their second mission, starting in October 2018, is to unlock new opportunities for people in places that have been hard-hit by globalisation and automation. Because in the creative destruction process brought about by automation and globalisation, many people get trapped in painful and prolonged transitions, when the destruction of their jobs and ways of life happens more quickly than the creation of new and better opportunities. And Zinc believes the combination of technology, talented founders, funding, research and government support can unlock new opportunities for people and places in these important areas: social mobility, healthcare, education and training, new types of employment, financial services, marketplaces, housing, recreation, family support etc.
📛 Employees, especially the ones paid on an hourly wage, lose $15 billion to wage theft every year, and software is facilitating that. Elizabeth Tippett, Associate Professor, School of Law, University of Oregon, found that settings in the timekeeping software that companies use to track their workers' schedule is used to facilitate wage theft (situations in which someone isn’t paid for the work, like working off the clock). The software is achieving this through tricks like rounding time logs (practices which are due because of outdated regulations from the time companies had to calculate hours by hand) and automatic break deductions to change that data, to their workers’ detriment.
📛 George Zarkadakis argues that the main reasons why centralized corporations exist (makes economic sense to assembly labour, capital and know-how in order to minimise resourcing, transacting and contracting costs) are no longer relevant, in the digital era. Hence why platforms appeared that reinvent how companies engage with their users and also how work is done. But decentralised tokenised technologies will take this even further, enabling a sort of 'platform cooperativism' (a bottom-up, self-organised business network), and this will allow the users (workers) to co-own the platforms and to benefit fully from the value they create. Despite being currently plagued by serious technical shortcomings, we can foresee a future where interconnected ecosystems of collectivist groups that provide services and produce goods replace what were once corporations and centralised platforms. We're currently experiencing a shift from corporations to two-sided platforms, and the future will see this shift even further to worker-owner platforms, allowing for a more equitable, resilient and democratic society.
Should we double down our focus on prosperity through future-proof cities?
🏘️ Rapid migration to cities is a global phenomenon. Those of us with a romantic view of life in the countryside may think that this flood to the cities can be reversed by, for example, policies that would expand land access or improve rural living standards. But lack of land is not the reason people migrate to cities in large numbers, argues Johan Fourie. It is because the reality is that cities are what create wealth, while the countryside is for spending it. Cities are where people prosper, because they have access to better opportunities (it is why social mobility is equivalent to the possibility to escape poverty). And inequality of city-life is an actual consequence of progress (new poor migrants fill in the places of previous poor people that climbed up the ladder), writes Johan. And why most of the poverty-alleviating policy ideas now focus on subsidies to help those in rural areas migrate to cities.
🌆 Cities are superstructures for culture, lifestyles, aspirations, and well-being for half of the world’s population. Today, cities represent 80% of global economic output and 70% of total energy consumption, writes Jay Zaveri. And yet today, our cities are slipping, fast: poor air quality, lack of pure drinking water, inequity and poverty, failing healthcare and education - all confounded by poor planning, execution and a lack of goal-oriented development. In an investment environment where social media and enterprise software have controlled the narrative over the last 10 years, critical problems like social mobility, affordable housing and the environment we live in have started to fester. It is why it is encouraging to see tech startups like UrbanFootprint empowerring city-planning at a parcel, neighborhood, city or region scale, simulating unlimited real-time scenarios for development with an unprecedented understanding of outcomes.
👩💻 Jennifer Pahlka, Founder of Code for America, describes principles and practices that will aid the government modernize for a digital age. She argues that too often policymakers are dependent on unreliable surveys and snapshots of historical data. Governments must shift from "policy as educated guesswork with a feedback loop measured in years" to become platforms that measure and use information about citizen-satisfaction and achievement of intended results to modify and improve their services on an ongoing basis. It is therefore not just the delivery of government service through digital means, but change the model of policymaking and government services for a digital age. For these, the following steps are required: 1/ Understand and Meet User Needs; 2/ Real-Time User Data, Not Years-Old Estimates (If we’re serious about improving government services, we must make the intangible tangible, the invisible visible); 3/ Iteration, from Intention Through Implementation. Singapore is already on that path, with all government services to become digital by 2023.
👪 Take for example, the fact that before the technology boom (which led to an unscalable workers concentration) that sent San Francisco’s housing costs into the stratosphere, the city was alive with children and families. Now it has the lowest percentage of children of any of the largest 100 cities in America. According to census data published last year, the share of children in San Francisco has fallen to 13 percent. That’s compared to 21 percent in New York and 23 percent in Chicago. And all this workers concentration while cities like Vermont will pay $10,000 to workers to move there and work remotely.
🚘 Driverless cars will change cities for the best, write Aarian Marshall and Alex Davies. On the contrary, Allison Arieff, in a very beautiful visual essay, argues that, without putting people first in cities re-design, driverless cars won't save cities (excellent illustration).
👍 But if you want a really intellectually-stimulating essay about humans' fascination with electrical vehicles since the late 1890s and how these fascinations has transcended time (to EVs and driveless), please do read Marija Gavrilov's stunning article. Marija works for the Exponential View newsletter, bringing a lot of value to it and helping Azeem Azhar be one of the best curators out there.
🌍 In developing countries, particularly African ones, millions of people are skipping the technological evolution process, leapfrogging over now-obsolete technologies and going straight to modern fixes. As a bonus, these often happen to be green, sustainable, and relatively cheap. Here are a few of the industries where leapfrogging tech is having the biggest impact on peoples’ lives: energy (skipping the necessity of electrical grids via solar panels and a thoughtful business model); connectivity (people who never had home phones are jumping directly to using cell phones, which enables their financial inclusion); healthcare (more proactive and inclusive through mobile distribution channels and better medicine inventory management). Still, argues Vanessa Bates Ramirez, this leapfrogging should not confuse us: policy, leadership, and institutions will ultimately play a bigger role than technology has in Africa’s continued development.
🌍 Since November 2008, the G20 countries have implemented more than 6,600 protectionist measures, but this does not mean globalization is in retreat, writes Susan Lund in a very good article! In fact, globalization is continuining its forward march, but along new paths - driven by technology and increasingly led by China and other emerging economies (by 2025, 45% of the companies in the Fortune Global 500 list will be headquartered in the developing world and half of global GDP growth over the next ten years will come from some 440 rapidly expanding cities and regions in the developing world). The benefits will be tangible and significant, but the challenges will be considerable. Global value chains have reached maturity; most of the efficiency gains have already been realized. This is where digital flows come in, from e-mailing and video streaming to file sharing and the Internet of Things. The movement of data is already surpassing traditional physical trade as the connective tissue in the global economy, and half of all trade in global services now depends on digital technology one way or another. Digital flows are also upending the corporate world, as digital platforms have made it easier for smaller firms to muscle their way in and challenge giant corporations. Countries will reap economic gains not from export surpluses but from both inflows and outflows.
Ben Thompson wrote, regulators should focus much more on zoning areas and housing regulations, if they want to enable prosperity, rather than dismantling the GAAFA giants.
Healthy Entrepreneurial Ecosystems
🥂To drive progress, it takes healthy entrepreneurial ecosystems that unlock prosperity. One of the critical factors for creating such ecosystems (besides talent, capital, markets, progressive regulations) are regional tech platforms that act as a pillar in driving everything forward.
It should therefore worry Europeans that they have entered the digital age with no such tech platform.
In David Galbraith's words, it's like the historical equivalent of Europe failing to transition from the agrarian economy to the industrial one. Or as my colleague Ben Robinson mentioned the other day, this is analogous to being at the start of the 1920s with no car companies (no Citroën, no BMW, no Rolls Royce, no Fiat, nothing).
Value of top 4 internet companies by continent:
Americas (GAFA - Google, Apple, Facebook, Amazon) $3 trillion;
Asia (JBAT - JD, Baidu, Alibaba, Tencent) $1.2 trillion;
Africa (JINJ - Jumia, Interswitch, Naspers, Jumo) $115 billion;
Europe (SAZA - Spotify, Adyen, Zalando, Asos) $55 billion.
🤷 If only Europeans had subscribed to Mary Meeker's Strategy Digest...
🌍 These giant tech companies (like Microsoft, Google in the U.S., Alibaba, Tencent in China, Naspers in South Africa, Naver in South Korea) are the ones who attract talent, drive regualations, create markets, and, as Nicolas Colin writes, the ones who acquire startups (as a net positive, creating returns for nascent VCs), and they’re the ones who eventually throw their huge balance sheet behind making inroads in more difficult industries. In Africa, for example, Jumia (poised to be the continent's Alibaba), is building from scratch much of the economic infrastructure within which to operate.
🌍 Johan Brenner, of Sweden's Creandum VCs, probably one of the most prolific investment funds in Europe, names these kind of companies "aircraft carriers" (large platforms with strong moats that drive forward in the ecosystem by attract talent, acquiring companies and launching partnerships. They are also a platform for new innovation, new ideas and startups). And he believes Spotify is Europe's aircraft carrier. An exit like this drives the tempo of the startup scene, but also provides an example on how European startups should not sell themselves too early to U.S. giants. Such "aircraft carriers" are attracting talent to the region, but are also enabling employees to cash-in and launch new start-ups and investment funds, from an experienced position.
Also refreshing is Dutch payments firm Adyen, which is debt-free and profitable and planning this month an IPO at a $8.3 billion valuation. The company will list on the Dutch Euronext stock market, cementing even further its European roots. One of Adyen's Top 10 customers is Spotify. 😉 If Spotify is the carrier, Adyen is the aircraft.
🎼 This can be music to Europeans' ears, but Spotify's moat will truly be put to a test soon, as it has to battle Amazon, Apple, now YouTube and most recently China's Tencent music streaming service, planning to IPO at circa $30 billion valuation.
🌍 Europe's platforms can also come from the fintech space. Take, for example, the crypto space developing in Switzerland, where, despite fintech funding slowing down due to lack of later-stage deals, there is a strong ecosystem of leading cryptographic companies, supportive regulatory framework, and access to capital and talent.
🇨🇳 China understood this dynamic earlier, and now, through its tech giants, it has started to influence the global digital market. One problem, though, is again concentration, finds a paper-study from Alicia Garcia-Herrero and Jianwei Xu. China’s digital economy is not bigger relative to the size of the Chinese economy than the OECD average, which masks large differences across its regions (with Beijing, Guangdong and Shanghai ahead of the OECD average, while the rest of the country left behind).
🇨🇳 China is also successful in developing a thriving startup ecosystem, and Christopher Nheu sums up some of the reasons for why China is winning: competitive environment, large market providing critical scale to startups, the government accelerates innovation, massive talent pool, and, contrary to popular belief, Chinese people have a big risk tolerance.
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An essay for the long commute
📉 An absolutely stunning interview-essay from Sriddar Papphu and Jay Stowe about how the pre-eminent media organization of the 20th century, Time Inc., ended up on the scrap heap. If you enjoyed Mad Men, you will enjoy reading this.
Top 10 articles I recommend which were featured in this digest:
1. Ben Robinson - Firms need business model change, not blockchain - June 2018
2. Ben Thompson - The Bill Gates Line - May 2018
3. Tren Griffin - "Proprietary Product Distribution" is Better than Sliced Bread - June 2018
4. Eugene Wei - Invisible Asymptotes - May 2018
5. Mary Meeker - Internet Trends Report - May 2018
6. Ben Thompson - The cost of Developers - June 2018
7. Bruno Palier - The politics of social risks and social protection in digitalised economies - May 2018
8. Marija Gavrilov - Defending the Electric Car - June 2018
9. Susan Lund - Globalization Is Not in Retreat - June 2018
10. Alicia Garcia-Herrero and Jianwei Xu - How big is China's Digital Economy - May 2018
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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