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

Dear avid readers,

Here is what I read between December 18th 2017 and January 18th 2018.

Strategy and Business Models in the Entrepreneurial Age

👓 If previous years were all about "move fast and break things", 2018 definitely shapes up to be the transition year to a more"slow down and fix things" modus operandi, as we will see throughout this digest. Facebook is changing its model. There have been many writings about the threat that Facebook's business model represents, both for the society and long-term, for the company itself. It seems that, for a company that operates under the network-model, focusing on one single metric that matters (DAUs) can be a fatal oversimplification, because it misses out on understanding the different elements working together in the ecosystem. Mark Zuckerberg announced changes to the FB platform, that will see users' engagement becoming more "meaningful and valuable", meaning the algorithms will promote more engagement between users vs. engagement with public sources (a.k.a news, and lately false news). This is both a brave move, as the company is willing to take a hit on its metrics (and stock price) to promote "time well spent", but is also seen as quite controversial, as some have written about the platform running away from its "accidentally acquired" role - a platform for news media. Some people, like John Batelle, say that Facebook is too big to simply pivot to a new, more "sustainable" business model. Some even say that Facebook is scaling back on their ambitions. This will of course trigger the re-design of monetization strategies from the journalism houses, as well. They simply have to deal with it, writes Frederic Filloux. 

🏭 Jacques Bughin and Tanguy Catlin, of McKinsey Global Institute, write in Harvard Business Review the conclusions of their research on incumbent companies' digital transformation. As per the research, as of mid-2017, fewer than 20% of incumbent corporations are currently on the path of digital reinvention. By learning the lessons from the few, we can guide the rest. One company to look at for learnings is Adobe, a $95 billion company that successfully transitioned from licensing software to cloud SaaS. Migrating to a recurring revenue model requires debunking a few myths, but as Tren Griffin beautifully illustrates with this MoviePass case-study, transitioning an industry to a subscription revenue model requires unlocking new monetization routes, particularly data monetization.

#️⃣ Another shift with the new year will be the re-focus on protocol companies, as the global tech community is trying to "fix" the internet and corporate governance. Further in the digest we will look at these companies, but to begin with, sharing thoughts from Yann Ranchere of Anthemis about what the business model of the future protocol companies might be.

Tech, Policies and Misdemeanours

📄  So let's take a moment of reflection. What happened in 2017?, asked Fred Wilson. From protocol companies to tech backlash. But the negative attitude towards tech might have been exacerbated by tech journalism, thinks Martin Bryant. So it is easy to miss the positive impact tech has on society. Some things about tech were actually good in 2017. Really. And if we go beyond the attention-grabbing headlines, we will find out that not all platforms are evil. Laetitia Vitaud denounces the oversimplification of placing all platform business models in the same bucket, especially the ones that play in the gig-economy work space. If we pay attention, we find out that there are platforms that promote human-centrism, brand value and craftmanship, which is opposite from the task-centered commoditization that we attribute to platforms today. And with new digital means of creating collective bargaining power, platform participants can force even more positive behaviour on platforms. And last but not least, policymakers will need to step up their game.

🤝So what to expect from 2018? Azeem Azhar, strategist and writer of the best tech newsletter out there (source of inspiration also for me personally), has crowdsourced predictions on tech and policy. Excellent writing. Steven Sinofsky of a16z writes a long, but down to Earth review of CES 2018 and what to expect from technology in the new year. Mustafa Suleyman of DeepMind believe ethics will (need to) become central to designing A.I. applications. Harry Shum, EVP o A.I. at Microsoft agrees. 2018 will be the year tech regains the society's trust

🐌 "Slow down and fix things" comes again to our attention, with the recently discovered Meltdown and Spectre microprocessor vulnerabilities. Ben Thompson mirrors this with the perceived state of technology today: faced with fundamental imbalances (friction versus an acute need for speed), both internet companies today and processors engineers back in the day had to devise ingenious systems to optimise (for engagement, and performance, respectively). This left everyone vulnerable, but considering all the gains, aren't these vulnerabilities worth it? With the right long-term-perspective, Meltdown and Spectre can be good for innovation, writes Albert Wenger.

Healthy Entrepreneurial Ecosystems

💰 Global VC investment in startups (which is a game of home runs, not strike outs, as argued by Alex Graham) hits all time record ($142 billion), but fewer startups are raising money and rounds are getting larger. There has been a boom of funding Chinese startups. 57 Startups become unicorns in 2017, mostly from U.S. and China. For the European ecosystem (including Israel), 2017 was also a record year, as per research from Gil Debner. Total investment amount was up by 40%, but only 8% growth by number of investments. Fintech was the most funded vertical. London retained its dominance, attracting record level investments and 4x more than Paris, driven by Fintech. I expect 2018 to bring more diversification, with Switzerland poising to be a global fintech hub.

👨‍💻  A.I. and Deep Learning definitely had a great year. Denny Britz writes a superb detailed overview of what happened last year in the space. As A.I. requires a lot of computing power, it works better on dedicated chips. This means we are facing the beginning of a new hardware market. Both large companies and startups move into filling the space.

📉 It is known that liquidity events with today's startups take longer to materialise, especially via IPOs. In probably the most expected such event, just recently, Uber shareholders, including its former CEO Travis Kalanick, took money off the table and sold part of their shares in a private equity deal to SoftBank. IPO planned for 2019. Dropbox, the cloud computing storage startup, is planning a $10 billion IPO in H1 2018. Spotify, one of the few true European Internet platforms, files for a direct listing on NYSE aimed for Q1 2018, avoiding the underwriting process altogether (investment banks, beware!). Can closing the gaps vs. U.S. in funding, talent, friendly policy and entrepreneurial spirit lead to a recipe for the next $100 billion European tech firm? Billionaire Niklas Zennstörm believes so. So do I. My bet is fintech.

FinTech snippets

🚫 On blockchain and crypto-currencies
💱 Bitcoin: We wrote our last digest in December, when Bitcoin was at $19,273. Since then, it has plunged by 47% to hit $10,300. In the meantime, there was confusion in the market about South Korea banning crypto-currency trading, which was since clarified as enhanced regulations. And so is China, raising its bar on the cryptocurrency crackdown, from imposing restrictions on electricity consumption to blocking access to centralized trading. Japan, however, or at least yen-based Bitcoin trading, seems to now account to up to 50% of trade volumes, which could add 0.3% to its GDP, as per Nomura research. U.S. SEC issued yet another warning, while Treasury Secretary warned that firms offering crypto-trading services should not ignore AML and KYC rules. The thing with Bitcoin (and other crypto-coins) is that the price can be manipulated, as per academic research showing how two traders cause the price to jump by 560% in just two months, in 2013. We experience now also the appearance of pump and dump groups, who use communication platforms to orchestrate coordinated purchases and selling. As the transaction fees have gone up, even dedicated Bitcoin conferences have stopped accepting the coin as payment method (the irony!). Despite this, there are analysts that predict a price of $100,000 for Bitcoin by end of 2018, but before that, the enthusiasts are asking institutional investors, like Yale, to dive in and endorse it. The thing is, Prof. Robert Shiller of Yale has already dived in, calling the cryptomarket a case-study for animal spirits, not for rational appraisal of asset values. Same with Warren Buffet, known for long term value investing, who is almost sure that Bitcoin will come to a bad end. So what happens on the bankers side? Goldman Sachs is setting up a cryptocurrency trading desk, while JP Morgan's Jamie Dimon is backtracking on his aggressive comments towards Bitcoin, calling blockchain "real". Some people argue that central banking backed crypto currencies are inevitable, while some argue why this is not realistic.

⛓️ Blockchain: Blockchain is real. So real, that even Mark Zuckerberg pledged to look into it. But ten years in, nobody came up with a use for this technology, argues Kai Stinchcombe. However, Fabrice Grinda puts down some thoughts on why these are still just the early days. Because, beyond the Bitcoin bubble, there is a huge opportunity of building a decentralised internet, as Steven Johnson illustrates in a beautiful, beautiful essay about the return to open protocols era and intellectual commons. The potential of creating a new scalable platform for tomorrow's decentralised applications is huge, but the fact that we get ourselves distracted by billions of dollars of artificial wealth created on paper is dangerous, argues Vitalik Buterin, Ethereum's co-founder. Distraction within communities creates gaps, which are aimed to be filled by others. This is why Telegram, a messaging app more known for offering communication channels for crypto communities, is launching its own decentralised platform project, aiming to compete Ethereum, in a massive $1.2bn ICO.

💱 Ripple: News that Japanese and South Korean banks and credit card companies will start using Ripple's distributed ledger technology and that a new XRP hedge fund was created has made the XRP cryptocurrency to surge to and pass beyond Ether by market cap. This has basically made Ripple the most valuable privately held company in Silicon Valley, which normally launched debates about the accuracy of the balance sheets of token based companies or if the particular technology behind Ripple (which is put to real case use with MoneyGram), does require a token to begin with.

🔌On Open Banking and Collaboration
PSD2 and Open Banking has finally become law in Europe, which still includes UK. Some banks are ready, some banks are not. It will be a gradual implementation over the next 18 months. The majority of bankers see it as an opportunity and would like to distribute third-party products through their platform, as per recent research from Temenos/Accenture. Erste Group is already ahead in executing its platform strategy, as incumbent banks that think strategically will require digital renovation as well as well as adopting an open business model, to thrive against competition. As per the research quoted before, the banker's biggest competitive fear this year is challenger banks, or Digital Banks, (including fintech companies that plan to become licensed institutions), because they have all the advantages (trust that comes with being regulated) and no disadvantage (legacy tech). But is there no disadvantage? Customer acquisition can be a very expensive game to play.

One more for the long commute?

👀 In a world full of anxiety about the potential job-destroying rise of automation, Sweden is well placed to embrace technology. With the right institutions for a digital era in place, nation-states should be afraid of old technology, not the new one. Inspiring.

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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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