How digital leaders can overcome the barriers to achieving their ambitions...
Welcome to The Forecaster. Every quarter Howard Yu will preview business trends likely to preoccupy international executives over the coming months. Think of it asa boardroom crystal ball, in which we preview everything from how incumbent financial institutions will fare against fintech disrupters to what Beijing is upto with its leading internet platforms.
The ephemeral internet is in; algorithms are out. It’s cultural pushback.
Elon Musk and Mark Zuckerberg are there. You can hear first-hand debates by prominent tech investors such as Marc Andreessen and Ben Horowitz. So, naturally, I was pleased when I was invited to join Clubhouse.
The fear of missing out on a new trend is very real. Even with access by invitation only, Clubhouse – the app that allows people to gather in audio chatrooms – has been downloaded eight million times and counting. Most talks are not recorded; once they’re done, they’re gone. And that’s the point.
A bit like wandering around SXSW or Davos, as you drop in and out of different virtual rooms, you hear how different communities speak. Though perhaps, lacking a third-party organizer with an agenda, Clubhouse seems to host more authentic voices.
This is not just a pushback on cultural curation or gatekeeping, this is a throwback to the simpler days of the Internet. You check into Clubhouse and just prowl until you find something interesting. As things are happening in real time, there is no fast forward or rewind; it’s the opposite of YouTube or Tiktok. All this reminds me of the rise of Snapchat The fact that the photo you send to friends will disappear in seconds is the charm. As our digital footprint is increasingly controlled by Google and Facebook, there will be stronger pockets of the Internet that serve as a countermovement.
Investors have taken notice. Snap is now worth nearly $100 billion, after a long climb last year. Watch out, Facebook.
Ever more carmakers will embrace China for production technologies
January saw Tesla start deliveries of its Model Y compact crossover, the company’s second China made vehicle, after the Model 3. Tesla’s share price has accelerated faster than one of its racy sedans over the past year, making Elon Musk’s enterprise more valuable than Toyota, Volkswagen, Daimler and Honda combined. But other electric vehicle (EV) makers have also seen their share prices rocket. Tesla, BYD and NIO, the world’s first, fourth and fifth most valuable carmakers, are all “electric first” manufacturers that have never made internal combustion engine powered vehicles. BYD (backed by Warren Buffett) and NIO (listed on the New York Stock Exchange) are both China based.
Tesla’s Shanghai gigafactory, which can build 150,000 Model 3s a year, was completed in just 168 working days, compared with two years for the group’s Nevada gigafactory. BYD not only makes cars, it is also the world’s largest maker of electric buses, leading the market in the US, Latin America and Europe. The company is also the world’s second largest battery manufacturer, ahead of Japan’s Panasonic and trailing only Korea.
That all suggests China is squaring up to dominate the supply chain for EVs, the motors of which are far simpler to make and service than traditional vehicles. Perhaps even more importantly, the world’s leading makers of batteries, the most crucial part of an EV, are also in Asia, where land for new factories is cheap and labor abounds. While Silicon Valley still controls the vital software, especially the complex algorithms for self-driving cars, it may not be long until even that skill seeps east.
Chinese tech giants will internationalize
Beijing has drafted antitrust rules to curb monopolistic behavior by its giant internet platforms. Late last year, Bejiing even suspended the initial public offering of Ant Group, potentially the world’s largest IPO.
The Chinese authorities have traditionally supported national champions (take Washington’s allegations about Huawei and TikTok over military links and illegal state aid) and western companies have been obliged to transfer technology as the price for entering the massive Chinese market. So why has Beijing suddenly decided to rein in some of its tech giants?
While JD.com and Alibaba have come under extreme scrutiny, there has been no sign of crackdowns against Huawei, Haier or Lenovo. As the table suggests, companies with substantial overseas revenues appear to be immune. Data on user volume among China’s three major internet platforms suggest the same. Again, WeChat and Alibaba are being scrutinized, while TikTok remains free, so far as Beijing is concerned. The data suggest that the companies still being backed by the government are the ones that have already gone international. They earn foreign income and repatriate profits. The reason why some peers are falling out of favor is because they are disrupting state-owned enterprises, without winning abroad. The long-term implications are that Alibaba and Tencent will accelerate their internationalization. Chinese big tech will survive, but to serve the national interest it will have to expand internationally, fast.
Livestreaming will become the new ecommerce
For teenagers, TikTok FOMO (fear of missing out) is real. Walmart’s newslast year that it was joining Microsoft in a bid for TikTok made matters interesting for adults too. The arrival of the Biden administration suggests any potential deal has been pushed off. But no one announces their intention of buying a company without being serious, especially not Walmart.
In recent years, Walmart has stepped up its online activities. In the US, it offers curbside pick-ups to enable shopping at a safe distance. Customers order online, then drive to a store where a worker loads everything into their vehicle, eliminating the need to enter a crowded store. In China, Walmart is the only foreign supermarket chain competing in the country’s massive ecommerce arena. It has invested significantly in JD.com, China’s second-largest ecommerce platform, and in 2018 ploughed $500 million into Dada-JD-Daojia, a grocery delivery service.
But then Walmart saw first-hand what happened in China during the pandemic as livestreaming took off. The technique involves broadcasting live video in real-time via the internet to promote and sell goods and services. For two to three hours at a time, influencers, brand reps and celebrities on platforms such as Douyin (Chinese Tiktok), Weibo (Chinese Twitter), and Taobao (Alibaba’s flagship ecommerce site) introduce products, give demos, share discounts and exhort viewers to buy.
Between March and December last year, the number of livestreaming ecommerce users surged by 123 million to 388 million. About two thirds made a purchase while watching a livestream.
In time, tens of thousands of TikTokers could be livestreaming products in the same way that millennials endorse brands on Instagram. Walmart would then restructure its logistic services in response. Physical stores could serve as fulfilment centers, even after the pandemic. Young people could watch TikTok, click, drive to a store and collect at the curbside. Repeatedly.
Just because Walmart can’t buy TikTok doesn’t mean there won’t be strategic alliances or joint ventures. Watch this space, Amazon.
Incumbents will fight back against fintech disrupters
Disruption is everywhere in finance. Last year was a golden epoch for fintech innovation, accelerated by COVID-19. Home shopping automatically boosts electronic payments, and when bank branches become inconvenient or unsafe to visit, customers turn online. Square and PayPal are obvious winners. But incumbents such as Mastercard and Visa have also been faring well.
IMD’s Center For Future Readiness tracks how ready financial institutions are for a changing future. The latest 2021 ranking of selected players is instructive (see chart or table). Only hard market data were used to calculate the overall composite score. The data, which are publicly available, have objective rules. Among factors measured were fundamental drivers fuelling innovation, including the health of a company’s business, the diversity of its workforce, its governance structure, investments it has made against competitors, and the speed of new product launches.
How did Mastercard and Visa prosper when the “plastic card” was deemed irrelevant in the age of Apple Pay and Google Wallet? Think “frenemies”: if you can’t beat your disrupters, let them join you.
Mastercard and Visa realized quickly that they couldn’t outrun fintech upstarts or tech giants. They chose instead to partner with their rivals, making their own infrastructures useful, so that when rivals prosper, so do they.
The two companies are working with PayPal, Apple and Google to create new market opportunities. They make such collaboration easy by investing in a wide range of application programming interfaces (APIs) and they make sure these are both secure and easily accessible. That way, the tech giants and cryptocurrency exchanges such as Coinbase can both find valuable partners in Mastercard and Visa. In finance, there will be no banks going forward; just tech companies that happen to lend money or process payments.
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