I keep reading a lot about VCs abilities to see around the corners. While I do not have access to such great ability or a crystal ball yet, I decided to still stick my neck out and put out a few trends that I see around me when a friend asked me what I thought were trends that could fructify in the next few years. Here are the 3 that I could come up with:
- Increased concentration of asset ownership - The rise of the on-demand apps like Uber, Airbnb, etc has increased the asset utilization rates by lowering marginal costs, making it more profitable for aggregation of assets and deriving "economies of scale" in operations. At the same time, the flexibility of Pay-as-you-go to the customer, takes away the hassle of capital expenditure and maintenance costs, and replaces it with operational expenditure. This is likely to negatively impact industries that have been fueled on the back of big ticket personal purchases fueled by debt first - cars, houses, farm equipment, construction equipment suppliers, banks, etc. before percolating down to other assets. But this would give rise to large asset owners - eg Car companies, REITs, Equipment leasing companies, etc. who would have considerable clout with the suppliers.
- Shortening of the "super normal" profit cycle - This follows from the surfeit of information accessible at one's fingertips. Information arbitrage, which was the basis of the super-normal profits in industries in the pre-digital era, is rapidly eroding. My take is that it would be replaced by Assimilation arbitrage - the ability to make sense of all the information rapidly to aid judgement. Hence, it would become critical to have access to tools/experts that aid expertise/vertical specialization, as that would be key to getting ahead of the competition. However, this advantage would be short-lived at each instance. This should give rise to more curated businesses, while causing the demise of mere information sources. Horizontal businesses like food courts, multi-cuisine restaurants should be impacted, while niche businesses would scale up quicker and be attractive investments.
- Increased personalization - Technology has lowered the cost of personalization and allowed for the creation of "services wrapper" around products. In this way, we are back to bespoke services of the days of yore, the difference being the lower cost of customization, primarily achieved through technology and less human intervention. This would mean difficult times for mass producers, and the rapid rise of personalization intermediaries. The key to their success though would be the ability to cluster their customers well - personalized within a "group" setting - kind of like the sports team t-shirts with names on the back.
- A fourth idea that I have not been able to develop fully is the need for emotional education for all - while continued prosperity for the past few decades has led to our physical needs being fulfilled and us graduating up the Maslow's hierarchy of needs, the lack of proper emotional training has lead to a lot of confusion and emotional upheaval. Therefore, a sustained effort to ensure mental development is needed to help people self-actualize. This should lead to the formation of new associations based on philosophy, theology and ideology like the Art of Living organization, or the revival of religious fervor. It would be a good business to be in the emotional well-being space.
Would love to hear your thoughts and comments.
- Increased concentration of asset ownership - The rise of the on-demand apps like Uber, Airbnb, etc has increased the asset utilization rates by lowering marginal costs, making it more profitable for aggregation of assets and deriving "economies of scale" in operations. At the same time, the flexibility of Pay-as-you-go to the customer, takes away the hassle of capital expenditure and maintenance costs, and replaces it with operational expenditure. This is likely to negatively impact industries that have been fueled on the back of big ticket personal purchases fueled by debt first - cars, houses, farm equipment, construction equipment suppliers, banks, etc. before percolating down to other assets. But this would give rise to large asset owners - eg Car companies, REITs, Equipment leasing companies, etc. who would have considerable clout with the suppliers.
- Shortening of the "super normal" profit cycle - This follows from the surfeit of information accessible at one's fingertips. Information arbitrage, which was the basis of the super-normal profits in industries in the pre-digital era, is rapidly eroding. My take is that it would be replaced by Assimilation arbitrage - the ability to make sense of all the information rapidly to aid judgement. Hence, it would become critical to have access to tools/experts that aid expertise/vertical specialization, as that would be key to getting ahead of the competition. However, this advantage would be short-lived at each instance. This should give rise to more curated businesses, while causing the demise of mere information sources. Horizontal businesses like food courts, multi-cuisine restaurants should be impacted, while niche businesses would scale up quicker and be attractive investments.
- Increased personalization - Technology has lowered the cost of personalization and allowed for the creation of "services wrapper" around products. In this way, we are back to bespoke services of the days of yore, the difference being the lower cost of customization, primarily achieved through technology and less human intervention. This would mean difficult times for mass producers, and the rapid rise of personalization intermediaries. The key to their success though would be the ability to cluster their customers well - personalized within a "group" setting - kind of like the sports team t-shirts with names on the back.
- A fourth idea that I have not been able to develop fully is the need for emotional education for all - while continued prosperity for the past few decades has led to our physical needs being fulfilled and us graduating up the Maslow's hierarchy of needs, the lack of proper emotional training has lead to a lot of confusion and emotional upheaval. Therefore, a sustained effort to ensure mental development is needed to help people self-actualize. This should lead to the formation of new associations based on philosophy, theology and ideology like the Art of Living organization, or the revival of religious fervor. It would be a good business to be in the emotional well-being space.
Would love to hear your thoughts and comments.
