Curated Insights 2018.11.16

The Experience Economy

What makes this possible is the paradigm shift I just described: consumers are always connected, which means reaching them is dramatically cheaper than it used to be. Even seemingly basic channels like email are very effective at driving surveys that show exactly how consumers are feeling immediately after interacting with a company or buying their product.

This gives an entirely new level of insight to management: while ERP showed what was happening in the main office, and CRM what was happening in offices all over the world, experience management promises the ability to understand what is happening with customers directly. It is a perfect example of business using new technology and paradigms to their advantage.

To win in the experience economy there are two pieces to the puzzle. SAP has the first one: operational data, or what we call O-data, from the systems that run companies. Our applications portfolio is end-to-end, from demand chain to supply chain. The second piece of the puzzle is owned by Qualtrics. Experience data, or, X-data. This is actual feedback in real-time from actual people. How they’re engaging with a company’s brand. Are they satisfied with the customer experience that was offered. Is the product doing what they expected? What do they feel about the direction of their employer?

Think of it this way: the O-data tells you what happened, the X-data tells you why it happened. At present, there is not technology company that brings these two worlds together. In particular, this exposes the structural weaknesses of CRM offerings, which are still back-office focused. Experience management is about helping every person outside of companies influence every person inside a company. So SAP and Qualtrics will do just that: the strategic value of this announcement is rivaled only by the business value.

Inside John Malone’s world

“Malone has long been focused on economic return,” says Vijay Jayant, an analyst with Evercore ISI. “He’s not an empire builder for the sake of owning assets. His strategy has worked out well for the people sitting on the same side of the table as him—the shareholders in his companies.”

Warren Buffett is often a point of comparison. Among the major differences is that Malone favors creating pure-play companies, while Buffett keeps everything under one roof at Berkshire Hathaway. Malone is comfortable with financial leverage, while Buffett shuns it. “Our businesses are rationally levered with cheap money,” Malone says. “It creates a higher return on equity for our investors. There’s no reason to think the leopard will change its spots.”

Here’s Malone’s take: “We’re not out there competing to buy Red Hat for $35 billion, but we have always been an opportunistic company. We try to position ourselves so that we can take advantage of opportunities through timely investments, good management, and synergies with our existing businesses.”

His method of control through supervoting stock is ingenious. He leverages relatively small economic stakes in Liberty companies—all fall below 10%—with a total value of about $5 billion into an influential voice or effective control of virtually all of them through ownership of supervoting stock. The beauty of Malone’s approach is illustrated by Liberty Broadband, which holds a 20.6% stake in Charter. Malone’s stake in Liberty Broadband of less than 4%, worth about $500 million, gives him a strong voice at Charter—a company with a market value of $75 billion—and effective veto power over important strategic decisions.

Why technology favors tyranny

Even if some societies remain ostensibly democratic, the increasing efficiency of algorithms will still shift more and more authority from individual humans to networked machines. We might willingly give up more and more authority over our lives because we will learn from experience to trust the algorithms more than our own feelings, eventually losing our ability to make many decisions for ourselves. Just think of the way that, within a mere two decades, billions of people have come to entrust Google’s search algorithm with one of the most important tasks of all: finding relevant and trustworthy information. As we rely more on Google for answers, our ability to locate information independently diminishes. Already today, “truth” is defined by the top results of a Google search. This process has likewise affected our physical abilities, such as navigating space. People ask Google not just to find information but also to guide them around. Self-driving cars and AI physicians would represent further erosion: While these innovations would put truckers and human doctors out of work, their larger import lies in the continuing transfer of authority and responsibility to machines.

Lethal bacteria help power kidney drug to beat 1-in-1,000 odds

Doctors believe they’ve found an answer for patients like Romero in a protein that is produced by lethal bacteria. The protein, which temporarily wipes out antibodies, was crafted into an experimental drug called imlifidase to give donated organs a fighting chance against the immune system’s defenses. Developer Hansa Medical AB says imlifidase could make transplants possible for about 35,000 U.S. patients who currently have poor odds, and increase matches for others.

Trends & time lapses

The most common age in the U.S. right now is 27. In fact, by 2020, the 10 most common ages in the U.S. will all be 35 and under. A wave of young people will be saving, investing, and buying houses in the coming years. This fits with my theory that baby boomers will not destroy the stock market as they retire en masse because millennials actually outnumber them now.

The housing market will always have its ups and downs but based purely on this demographic data my inclination would be to conclude real estate across the country will continue to rise in the coming decades as millennials begin settling down and starting families. That will put some massive pressure on the housing market where supply is relatively constrained following the real estate boom and bust of the 2000s.

The relative stability of the United States as the largest economy in the world is impressive. People have been calling for a downfall of the American empire for some time now but the U.S. has a lot of built-in advantages — a diversified, dynamic economy, a vibrant technology industry, a better demographic profile than the rest of the developed world, diversity and immigration (people still want to come live here), and our increasing role as a big player in the energy space to name a few.

When things get wild

There are three legal investment strategies: You can be smarter than others. You can be luckier than others. Or you can be more patient than others. Know your edge and how hard it is to maintain.

If investing were all about math, mathematicians would be rich. If it were all about history, historians would be rich. If it were all about economics, economists would be rich. If it were all about psychology, psychologists would be rich. In reality it’s a mix of many disciplines, but some of the brightest people specialize in one topic and can’t see the world through another lens.

Your lifetime results as an investor will be mostly determined by what you do during wild times.

How this all happened

People measure their well being against their peers. And for most of the 1945-1980 period, people had a lot of what looked like peers to compare themselves to. Many people – most people – lived lives that were either equal or at least fathomable to those around them. The idea that people’s lives equalized as much as their incomes is an important point of this story we’ll come back to.

Quantitative easing both prevented economic collapse and boosted asset prices, a boon for those who owned them – mostly rich people. The Fed backstopped corporate debt in 2008. That helped those who owned their debt – mostly rich people.

Tax cuts over the last 20 years have predominantly gone to those with higher incomes. People with higher incomes send their kids to the best colleges. Those kids can go on to earn higher incomes and invest in corporate debt that will be backstopped by the Fed, own stocks that will be supported by various government policies, and so on. Economist Bhashkar Mazumder has shown that incomes among brothers are more correlated than height or weight. If you are rich and tall, your brother is more likely to also be rich than he is tall.

None of these things are problems in and of themselves, which is why they stay in place. But they’re symptomatic of the bigger thing that’s happened since the early 1980s: The economy works better for some people than others. Success isn’t as meritocratic as it used to be and, when success is granted, is rewarded with higher gains than in previous eras.

How do you help a grieving friend?

Cheering people up, telling them to be strong and persevere, helping them move on…it doesn’t actually work. It’s kind of a puzzle. It seems counterintuitive, but the way to help someone feel better is to let them be in pain.

Grief… happens upon you, it’s bigger than you. There is a humility that you have to step into, where you surrender to being moved through the landscape of grief by grief itself. And it has its own timeframe, it has its own itinerary with you, it has its own power over you, and it will come when it comes. And when it comes, it’s a bow-down. It’s a carve-out. And it comes when it wants to, and it carves you out — it comes in the middle of the night, comes in the middle of the day, comes in the middle of a meeting, comes in the middle of a meal. It arrives — it’s this tremendously forceful arrival and it cannot be resisted without you suffering more… The posture that you take is you hit your knees in absolute humility and you let it rock you until it is done with you. And it will be done with you, eventually. And when it is done, it will leave. But to stiffen, to resist, and to fight it is to hurt yourself.

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