Markets and the year(s) ahead: Digital edition
An outline of the digitized economy today (A), and for a while to come (B):
- It has taken over fast, but the market seems to have caught up with massive currents — analytically and operationally — even if short- vs. long-term divergences remain, and there is a macro-economic fog.
- Data is expanding its footprint at the core of virtually all enterprise, enabling corresponding expansions in product; those who lag in the former are also prone to lag in the latter.
- Segments are converging as their common bond in data/analytics forms a bridge between them (e.g., media/commerce/finance/messaging, or hardware/software/IoT).
- As distinctions between traditionally separate categories fade and the lines of definition blur (where does Amazon belong? Apple?), competitive reconsiderations follow.
- Incumbent sector leaders are actively transforming to keep up with software transformations and data possibilities (GM, GE, IBM, GS/JPM, VZ)…
- … while new entrants are gaining fast, enabled by the same data/analytics competitiveness (Tesla, Uber, Airbnb).
- Fundamental drivers are in a transitional state: supply is becoming information supply and demand is becoming attention to it.
- Disruption is no longer a surprise, but is expected; thus, even the established leaders are incubating and building optionality.
- Investment and speculation now shape a balanced portfolio dynamic, such that business strategy and financial asset management are not so different.
- Organizational rigidity is a liability — as debt is not only financial when most businesses have startup/venture aspects — and volatility creates openings and drives opportunity.
- In this environment, two basic asset forms are beginning to take shape: (a) the technology/product/service, and (b) the network/platform.
- The former can be short-lived, require constant upgrade and reinvention, and are always at risk of disruption or commoditization.
- The network effects of the latter category make it more robust and a base for steady growth.
- Companies of the product/service variety are advised to create network effects, or to combine with networks.
- Networks are advised to develop additional dimensions — enabled by deep data troves — to enrich and further solidify their presence.
- The deepest/broadest networks are best positioned to expand into new fields (e.g., AI, AR/VR, automotive, robotics, health)…
- … and have been recognized by markets for their value (AAPL, GOOG, MSFT, AMZN, FB).
- It may thus be argued, circa 2017, that the lower-risk tech assets (the multi-dimensional networks) also have the greatest upside potential.
- We may thus begin to notice that convexity & a competitive Power Law distribution in all categories, are conjoined.
- The goal is to be at the head and to avoid the tail, as always, but maybe much more so, around this time, than ever before.
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