SWOT: Identifying Opportunities

THE NEXT BIG PLATFORM: from surrogate to social life extension?

The Hypothesis

The billion dollar question for marketers and investors alike, where will we media-junkies spend our time and “what’s the next big platform?”

In short, I don’t know the answer.

However to estimate the potential of media formats, we can look at users’ activities and see who ‘hosts’ these activities. This provides us with some guidance as to who has the potential to ‘bundle’ these activities.

In its recent 2021 Technology Outlook, Activate has done exactly that. They have drilled down into one of the media categories and they came to conclude that gaming is the contender for the next big platform. And they do not stand alone with this conclusion.

Gaming itself is growing steadily. But it’s about more than gaming as a growing segment of user activities. Gaming is also an enabling technology that can host other non-game activities of users, letting games emerge into wider platforms.

As we just said, platforms emerge by ‘hosting’ and bundling popular activities of users. Facebook not only hosts our connections with friends, our messaging with them, our media consumption, it also hosts the marketing activities of most businesses, creating the reinforcing loop that enabled the company’s growth.

Activate quite enthusiastically sees gaming taking on a similar role, stating that “Similar to previous waves of digital technology (e.g. search, social, eCommerce, mobile, apps, messaging), gaming will fundamentally change how people interact with each other and the internet overall. Most digital activities (e.g. search, social, shopping, live events) will increasingly take place inside of games”

This hypothesis is shared by others.

Andreessen Horowitz calls games the “new mall (and the new sports bar)”, expecting games to be “the next social network”, building on the evidence that many people today use games to socialise without a goal to win and that concert with attendance of up to 11 million people have been carried out in games.

In TechCrunch, Taylor Hatmaker explains that “we need creative ways to feel present with other people” and that virtual worlds provide us with the tool to do this. She convincingly cites the example of the game “Animal Crossing”, where she had a wonderful and fun time visiting her younger sister’s island in the game. Animal Crossing also hosted its own in-game talkshow as well as a conference.

Yet, in particular tech people and analysts tend to get enthusiastic about tech driven opportunities. Do we share this enthusiasm?

Following the user activities

Let’s look at the users.

We indeed have seen many examples of new in-game activities of users this year.

In-game-events have increase significantly. The attendance of “LIVE IN-GAME CONCERTS” was the most popular in-game activity in 2020, followed by “Virtual re-creations of social/life events within games (e.g. birthday parties, weddings)” and “In-game movie and TV show previews” sharing the second place.

The examples even extend beyond the classic tech and gaming community. In its anti-censorship campaign “Truth Finds a Way”, Journalists Without Borders have successfully used the game Minecraft to ‘smuggle’ libraries of censored books into autocratic states. The game contained books with content produced by leading journalists.

These examples indeed to provide proof of concept that games are able to host other activities. But 2020 is not a normal year. Covid is an extraordinary effect.

In the first place, people have changed their behaviours because they had to, not because the new modes of activities are more convenient or joyful. Users have fled to games to compensate for the lack of opportunity of real life activity. Again, user behaviours do not follow what is technically possible, they follow a real need.
Therefore we will have to see what will remain after the pandemic.
Once that need that was created by the pandemic, that lack of direct social contact, becomes redundant we will have to see what remains.
Time Out Magazine might not necessarily have to include a “Fortnite” Section next to its Berlin or New York recommendations.

We will have to see what activities will remain virtual and which ones will come back to normal life.

Reframing the Question: ‘how’, not ‘whether’

But may be “what will remain” is the wrong question after all.

We tend to fall into the habit of viewing new formats, new media environments through the lens of our old tools. This habit keeps us from understanding what this new environment really is about.

May be we have to reframe the question. It’s not whether people will keep using these virtual tools, it’s more what for and how they will use them.

Every medium reconstitutes the dialogue.

TV has moved us from a continuous focused activity to an activity where we are immersed into shorter sequences of information.

Social Media has changed the dialogue to let us communicate in a few seconds, mainly through headlines in a kind of continuous messaging. Facebook never sleeps.

Instagram has enhanced our ability to communicate through visuals. It has also driven creatives to create shareable content quickly, to build leaner workflows and to experiment.

What they all have caused is an unbundling of content. We are provided with content in snippets, fitting our shorter attention spans, fitting the Facebook feed where one message is not related to the previous and fitting to short ads.

Also our activities have become more and more fragmented due to new technologies. 100 years ago we met our neighbours the same way every week. Today, you might have 5 different lines of communication with your friends, through messenger, email, public posts on social networks, and meeting for a beer in the evening. Each conversation has a different tone to it.

Similarly, from these new tools, new forms of dialogue will emerge. The tools are there now, people have started to get used to them, and they fill find new use cases.

The current use case, let’s call it “compensation for lack of direct social contact” will fall away. A game cannot replace the live concert, the real-life experience.

Once we can start visiting real life concerts, these new dialogues will most likely extend beyond how they are conducted today on these platforms.

But this extends beyond games. We have also moved conferences into the virtual space. Virtual conferences currently are booming. But once the hurdles for real conferences fall away, Zoom cannot replace their main value propositions. Real-life conferences provide us with motivation and inspiration for the tasks to come, and they enable us to build a personal network, personal dialogues. These personal dialogues form much stronger bonds than you can form in front of zoom screens. If we just want to get the knowledge we can watch a Youtube video, read a book, or listen to a podcast.

However none of this means that people will not keep using these new tools. New forms of dialogue will emerge. Those dialogues will be new use cases, that may be we explore during this pandemic.

These dialogues will neither be the old form of event, nor will they be the traditional form of game.

„Societies have always been shaped more by the nature of the medians which men communicate than by the content of the communication”
Marshal McLuhan

The type of dialogue

These new dialogues can have different forms.

May be they will be used primarily for long distance connections. May be they will be used for when we don’t have time to go to a full concert and want to enjoy a 30 minute snippet.

Most likely however, they will continue the pattern of unbundling of content that we have experienced. Most likely we can expect these formats to be shorter, more bite-sized snippets than the real-life events, because that is how our attention span works on the internet. They will cater to this fragmentation of our conversations.

Possibly real concerts will be extended into the virtual space repackaged and remixed for this new environment. Possibly our real-life conversations will extended through these new tools.

The type of platform

Onwards, from activities to hosts.

Possibly these hosting platforms will not be a game as we know it. The features will adapt to new use cases. It might not make sense to start playing a game if we just came for the concert experience.

IT’S NOT ABOUT THE GAME. IT’S ABOUT FINDING WAYS FOR PEOPLE TO CONNECT, AND GAMES PROVIDE THE TECHNICAL TOOLS

May be we should think of it in terms of blockchain technology, where bitcoin is just one use case. The game is the bitcoin, but game technology can have far wider applications, like the blockchain has.

May be we should take a step back from games and ask, for what reasons do people seek connection and experience online and how?

Next to games, other tools are similarly shaping our new interactions. We have talked about virtual conferences. Video streaming has taken on interactive and community elements that we usually find in games. Virtual watch parties have increased. Streaming services have added interactive titles that influence the story, like Charlie Brooker’s Black Mirror Bandersnatch. Fitness streaming services have taken our workout virtual.

All these will generate new forms of interactions, new forms of dialogue. Those who will win are not the ones with the best technological features but those who enable an engaging form of dialogue.

This is why we should think not in terms of games but in terms of use cases and enabling technologies.

here is part 1 of this series

As always, I leave you with reading recommendations.

Here you can find the Activate Technology Outlook 2021

Nicholas Carr’s “The Shallows” is a of our day and age. It explores how what he calls intellectual technologies shape our behaviours and our brains. If you have found the documentary “The Social Dilemma” insightful, then this book will take you a level deeper.

Have a look at McLuhan’s classic “The Medium is the Massage” if you don’t own it yet. The version illustrated by Quentin Fiore is a visual masterpiece of its time.

Taylor Hatmaker’s TechCrunch Article

A short Overview of Gaming Trends by Andressen Horrowitz

The In-Venues of the Online Space

“Societies have always been shaped more by the nature of the media by which men communicate than by the content of the communication”
Marshal McLuhan

Last week the Activate Technology Outlook 2021 was published. All those want to understand how and where we spend out time in the digital world, will find this 140 page report loaded with useful data and insights. While useful, however I do not agree with all the conclusions of the report.

But let’s dive into the most important findings:

Lets’ first see where we, the users, spend most of our time, drilling down into our activities and finally to the venues we frequent. In Part 2 we will join in on the search for the next big platform.

By extending the scope of Activate we will try to assess the crucial question as to what are extraordinary effects due to the current pandemic and what are long-term structural changes that will remain.

How do we spend our time?

As a disenchanting start, the report accounts for multitasking of our activities, leading to a 31.5 hour day for the average American. For neuroscientists and doctors this may not be the best news, as is the insight that with 6:30 hours sleeping and 7:10 hours, other non-work related activities have to compete head to head with media consumption. Employers may not be too fond of the insight that work and work-related activities make up only 5:29 hours per day. But we have to bear in mind that we speak about averages here, therefore this picture is distorted.

But average or not, it seems fair to say we are glued to screens, and I am not sure if all these new meditation apps can compensate for the damage that multitasking and screen time do to our attentional capacities and memory processes.

But let’s leave neuroscience for another day and let’s look into what all of this means for businesses, marketers and for consumer behaviour.

What activities are most popular?

How and where do we spend our time on the internet? Most time we spend on videos (5 hours per day). This is followed by audio consumption like podcasts and music (2:35h) and then gaming (1:37). According to the data social media finishes only at fourth place (1:09), requiring the least of our time. This came a bit as a surprise to me.

For the future until 2024, Activate expects these user behaviour patterns and the split between activities to remain rather constant. Gaming is the only category expected to rise by 3.4% p.a. This is where I am doubtful. Activate did not specify on what assumptions they based this forecast, but history has shown that, as new media arise, users will find new ways to use these media. Similar, as user’s daily life changes, also their media consumption patterns will change. If we can agree on only one thing, then it’s that our current world is not static.

Which venues are most popular right now? Will they remain in demand after the Pandemic?

How is our media consumption changing and which venues are the featured places to be?

Not surprisingly, our overall tech & media consumption in hours has increased by 6.5% in 2020.

If we drill down by platform, we can see that Facebook’s usage has declined by 9%, whereas, starting on a lower level, Twitter usage increased by 78% and LinkedIn by 38%.

Now this leads us to an interesting point, namely the question as to whether these are just temporary or structural changes.

With the current crisis, 2020 experiences a lot of extraordinary effects. This is why we should be careful when we project current trends into the future.

When it comes Facebook, we probably agree that Facebook is facing a number of structural challenges.

First, younger generations are less attracted to Facebook. This reduces the number of users of the platform.

Then we have users’ increasing awareness that their attention is sold as a product, as laid out by the movie The Social Dilemma. This can has an impact not on the number of users on the platform and on the time spent per user.

The other factor is the attractiveness of Facebook as a platform to its existing users. What do I mean with that? Let’s just say you operate a fashionable club in a city like New York, London or Berlin. To keep your club attractive you will need to keep an eye out for what type of folks gather in your club. Trouble will start when bachelor parties start populating your etablissement. This is probably the best way to have urbanites avoid your club like Trump avoids facts. To apply the metaphor to Facebook, let’s remember that the platform started as a ‘club’ for Harvard students. Not much of that is left when we consider that Facebook is now host to some of the world’s most prominent conspiracy theorists and finest trolls that the internet has to offer. In many ways it still is useful, but it has lost some of it’s early excitement.

Now, staying with the example of the club, urbanites tend to be early adopters. If we look at PEW research data, we can see that Instagram, Twitter and LinkedIn – the fastest growing networks – have an over-proportional share of urban users if we compare it with Facebook. Facebook has become that cruise ship where you can’t choose the table-neighbours you have to spend the next week with.

While we are in an unusual situation this year, my estimate is that Facebook might continue to become diluted, or shall we say gentrified, beyond the current year. My estimate would be that the platforms that provide less noise and more substance and meaning continue to thrive. Instagram seems a solid contender at this time.

This has been part one of two articles on Platforms. In the next part we dive into the question of whether games will become the next big social media platform.

Continue to part 2

How to Locate the Next Growth Markets: Spotting the Soft Factors

This article first appeared in my column on the investor magazine Equities.com and has been updated since.

Historically, investors looking for potential growth opportunities have hyper-focused on American companies emerging from tech hubs such as Silicon Valley, New York, Boulder and Austin. However nowadays, with early stage valuations on the rise, increasing political instability and possible economic isolation caused by recent elections, it may be time to rethink the original framework for predicting future growth investment spaces.

President Trump’s ‘legacy’, if you want to call it this way, has increasingly isolated the US if not economically, then at least politically. The same goes for post-Brexit UK and also for the parts of continental Europe which are still being held back by increasingly tense social, political and economic climate.

The evolving political climate across the global economy poses multiple questions for investors, startups and strategy departments. Will this have an impact on businesses? How will it have an impact on the engines of our economies, the growth companies, and how it will effect the expansion of future growth markets? And what factors should we look out for when we assess the macro climate?

How Important are Policies?

In retail the mantra is location, location location.

For corporates and large scale global manufacturing companies, location has traditionally been equally important. Companies choose base countries based on factors such as bilateral trade agreements, political climate, tax regulations and access to suppliers. Recent tendencies of protectionist policies, as well as support for certain corporations and potential bilateral treaties might seem extremely influential factors for corporates, who are constantly looking for new market opportunities.

However, when we look at the growth markets of the future, then these factors are less important nowadays. Such policies are meant to support big conglomerates who know how to make themselves heard in the political space. But the time when European or US oligopolies would have a large headstart over their Asian counterparts has passed. During my time in private equity I have seen a fair share of producers of high quality products who seemed to be well protected until Asian competitors ramped up their skillset to produce the same quality at lower costs. And cost is not a criterion that these western companies are able to compete on.

If companies want to remain competitive, their competitive advantage needs to stem from innovation. The innovative businesses who create entirely new markets or products are the ones that drive not only competitiveness but also job growth, and so far big corporates haven’t been the ones who excelled at this.

Therefore, if we are searching for new growth markets, the typical demands of a location (bilateral agreements, materials, suppliers) become less important. Highly innovative, technologically advanced companies, especially SAAS enterprises, don’t rely on any of these factors.

Like good wine, Growth Companies need a special turf.

The ‘raw materials’ that keep the cogs turning in forward thinking tech companies are the talent which they bring on board, the bright minds which are constantly inventing, and improving. So while location is important, it is for totally different reasons. The key requirements for these growth companies are not based on trade agreements, or suppliers, but instead proximity to universities, space to grow and scale, and a liberal environment that attracts foreign and homegrown talent

Talent Needs Space and the Right Conditions to Grow:

For innovative growth companies different patterns play out that for corporates. The success factors for countries who compete for economic leadership have changed, too.

In his book Startup Communities, Brad Feld first highlights “Feeders” – these are the essential drivers of startup communities like universities, entrepreneurship programs, VCs, non-profits, government schemes, mentors and investors.

Next to these feeders, access to talent is critical for startups and growth companies. This ranges from skilled developers, designer and marketers, to experienced entrepreneurs and an infrastructure of mentors and investors. Richard Florida refers to this abundance of talent as the creative class, and argues that these educated, highly sought after people want to live in nice places and enjoy a liberal culture with a tolerance for new ideas. Most of all, they want to be around other creative-class individuals, which creates a strong network effect between creative communities.

Network effects mean “being in a place where startups are the cool thing to do and chance meetings with people who can help you.” as Paul Graham writes.

Northeastern University has mapped the intellectual migration network in North America and Europe over a 2,000-year span, illustrating how today’s cultural capitals have emerged.

Here is North America:

…and here is Europe:

An open society is crucial. By open, I mean not only tolerant but also a meritocracy where people have the freedom, the means and the education to innovate, try new things, and build ventures, without being held back by ‘old boys’ networks that hinder progress by hoarding opportunities and blocking outsiders from jumping in.

Since the beginning of the startup revolution, we have seen that a society based on old boy networks will not feed talent, but instead lead to inflexible corporations that fail to act at the right time and push change. And change is what these times are all about.

The current political climate with an increasing divide between conservatives and progressives is creating a toxic environment that is far from the perfect field to plant new startup ecosystems. This is why liberal democracies like France and Canada are seeing space to capitalize on their neighbours’ weaknesses and have relatively young leaders that represent a new generation who are ready and willing to shake things up.

While Emmanuel Macron has been courting US scientists after Trump’s withdrawal from the Paris Climate agreement, Canada is successfully tempting U.S. companies and talent north, with Facebook (FB), Google (GOOGL), Uber and Microsoft (MSFT) recently having opened offices there.

The Emergence of the City State

However if you live in a country whose political climate has just made a U-turn, here is some good news. While political leaders, their governments and their policies play a big role in defining how attractive a country is to the creative class, this doesn’t mean that particular cities or ‘hubs’ cannot flourish by themselves.

Led by California, dozens of states and cities across the US have already stated their intentions to ignore Trump’s withdrawal from the Paris agreement. Silicon Valley will continue to boom regardless of Trump’s meddling, and Sadiq Khan remains as influential in the future of London as Teresa May. The impact of the cities on a growth space may actually be higher than the impact of the country, as cities, states and hubs end up micromanaging themselves.

If you live in one of the global cultural centers you will notice how people tend to move almost more between New York, London or Berlin than within their own country. This provides an interesting exchange of talent and knowledge between these hubs. If Silicon Valley’s unicorns have found more innovative or more productive ways to organize their work, then other hubs are likely to follow suit, not only because of the internet but because of talent, which acts as a multiplier.

In calling Berlin home, a city that not only has built and has torn down walls, I am fortunate to find myself in an environment that’s a breeding ground for growth industries. While Berlin has long suffered from extraordinarily high unemployment rates, thanks to liberal immigration policies, a welcoming culture and low cost of living, it has attracted talent from all over the world, which produces an astonishing output of new businesses and jobs.

How to Predict Growth Markets in the New Landscape?

Therefore, for growth companies, political macro factors of a nation are of lesser importance than the type of infrastructure, culture and society that a city or hub offers. Investors equally will shift their focus from macroeconomic factors to the factors that attract talent, and from nations to cities.

But how do you assess such an environment?

1. Follow the talent:
See where migration is happening as illustrated in this map of migration from 2005-2010. These are fast changing times, and to keep up to speed, ecosystems need a steady flow of the best talent out there.

2. Scout for education and an evolving culture:
Assess which educational institutions matter and their admission policies. Do they offer open access or act as a breeding ground for the new generations of old boys clubs? Is society within an area segmented or is it open? Look at income distribution within a society and how it changes over time. Is it monopolized or does it reflect true opportunities for everyone? Resources like Nomadlist provide you with useful insights about local cultures.

3. Spot innovation hubs:
The European Commission and KMPG offer lists of key innovation hubs. Compare several of them and watch how they develop. The magic sauce is in the criteria they apply. While some focus on the quality of local universities, others focus on R&D activities by startups. Some focus on the number of well known unicorns, and others focus on the whole infrastructure. Your focus will depend on the stage you are interested in. While places like Berlin or Lisbon provide attractive early stage opportunities, the more developed US cities will provide a richer supply of larger, fast-growth companies.

Culture drives growth. But unlike economic policies and GDP figures, culture is not always easy to understand and assess. Yet this is why looking through the smoke and finding open climates, where innovative companies can find the space to grow can put you will ahead of the rest of the herd.