Thursday, 7 March 2019

Is another tech bust coming?

The technology sector (referring to online services, and to a lesser extent, SaaS, which is somewhat different in the B2B space) has been one of the strongest stock market performers over the past decade. Growth rates in users and top-line have been incredible, but with a relatively small handful of exceptions (Facebook, Google, Tencent, Alibaba, Expedia & Priceline, and a few others), profitability has been vanishingly rare. However, managers with heavy technology exposure - either in the listed or unlisted space - have nevertheless made a tonne of mark-to-market/capital-raising-valuation profits, as valuations have escalated alongside galloping top line and user growth.

The received wisdom at present is that the lack of profitability reflects heightened investment in growth and customer acquisition, and that as these businesses scale, profitability will eventually mushroom upwards as they did at the likes of Facebook, an in some cases that may well prove to be the case (see my post on Spotify). However, that this will happen in general is still an article of faith, and as I hope to argue in this article, I believe there is a good chance those cases will prove to be much rarer than is currently believed, and that it is at least as likely that losses actually significantly increase in coming years, and significant valuation (and economic) carnage subsequently ensues. Indeed, I'm convinced it's possible we could see a tech bust on par with the 2000 fallout, as the two booms, and potentially the coming bust, have a lot of dynamics in common.

The bust revealed to investors that while technology can (and has) change(d) society, it doesn't change the laws of economics and business profitability, or how companies are ultimately valued. From an aggregate industry standpoint, the level of profitability will - like any industry - be ultimately determined by the balance of demand and supply, with some necessary adjustments made for the existence of genuine network effects and other sources of customer lock-in/pricing power, which I believe are likely to prove much rarer than is currently believed.

The past decade has seen a mushrooming in demand for online services, driven by the advent of the affordable smartphone (note that in this post, I'm focusing primarily on B2C, including social media, video streaming, online gaming, online news like Buzzfeed, e-commerce, and other B2C services like travel booking, ride hailing, food delivery, etc, rather than B2B SaaS, where the dynamics are somewhat different). Unlike the 1995-2007 period, where consumption of online services/media was constrained by the amount of screen-time people were able to spend in front of their PCs, the advent of the smartphone - coupled with increasingly fast and affordable wireless data networks/services - has now put a small computer screen inside the pocket of the majority of human beings on the planet.

This has been transformational on the demand side. The total demand equation is determined by the aggregate number of 'eyeball hours', coupled with people's incomes/purchasing power. While consumer purchasing power has grown relatively slowly, smartphones and wireless networks have exploded the amount of available eyeball-hours, by expanding not only the pool of connected customers to the majority of the world, but also the number of available hours people can spend interacting with online media/services.

Unlike in the pre-smartphone era, people can now consume online media/services while commuting, waiting in line at the bus stop or in a store, walking around at the mall, or sitting at their desks at work. All they have to do is pull their mini computer screens out of their pockets/bags and get online. Furthermore, the addictive nature of many online platforms (notably social media) has also kept people glued to their screens to the maximum extent possible. In combination, these factors have propelled the eyeball-hours demand-side up the steep section of the 'S' curve.

However, the whole online/mobile services eco-system is about to run into a serious problem: there is a finite global population base, and there are only 24 hours in a day, so the amount of humanity's collective eyeball-hours available to tap is also equally finite, and is rapidly becoming saturated. When this saturation point it hit, industry growth in online services/media is going to become much more zero-sum/cannibalistic, and morph into a market share fight for our finite attention.

Netflix CEO Reed Hastings recently noted that one of his biggest competitors is the hit online game Fortnite, and he is absolutely right. Hastings recognises that there are a finite number of eyeball-hours up for grabs, so any source of online media/entertainment that absorbs a bunch of eyeball-hours is necessarily a competitive threat to all other sources of online media. When industry eyeball-hour saturation is reached, the success of one platform/service is going to have to come at the expense of other platforms/services, rather than via expanding into what was previously a void of underutilised attention (e.g. instead of sitting around the airport with nothing to do waiting for a flight, or queuing at the bank, people can now interact with their phones, etc).

The past decade has been the golden era of the demand-side of the equation, which is rapidly drawing to a close, and yet, most online services companies are still not making much money (if any). Why is that? Because supply has grown as fast as demand. The exciting growth narrative has drawn a flood of capital into the industry, from the VC/privately funded tech start-up space to Softbank's Vision Fund, to now also the reinvested cashflows of the small pool of giant, highly profitable tech platforms such as Tencent, Baidu, Alibaba, etc. Baidu for instance has funded numerous loss-making businesses over the past five years that have consumed most of the cash flow its highly-profitable search engine business has been generating. iQiyi is an example, which while growing fast, has negative operating margins of nearly -50%, as it fights for market share with Tencent's loss-making streaming service.

Valuations have nevertheless mushroomed because, much like in the late-1990s bubble, investors are focusing on growth in active users and revenues, rather than profitability. Much like in the bubble, multiples of revenue or eyeballs (today, rebranded as 'active users') are being used, based on faith that as scale is acquired, profitability will inevitably follow, alongside rising economies of scale. But the laws of economics and demand & supply - not to mention the bubble precedent - would warn against making such an automatic assumption of future prosperity.

What is just as likely to occur - if not more so - is that rather than profits inflecting upwards, losses actually deepen as demand-side attention saturation beckons, and tech companies start fighting with each over a finite pool of eyeball-hours for market share, triggering a massive industry fallout and (eventual) consolidation cycle. As the demand-side moves towards the shallow, right-hand section of the S curve, while supply growth continues at its former exponential pace, the fight for users and eyeballs is only going to intensify, and aggregate industry operating losses are apt to mount.

It is telling indeed that after a decade of hyper-growth in demand, profits are still as rare as they are. It stands as a testament to how effective free markets are at stimulating supply to meet growing demand (especially in loose capital market conditions) and crushing profits, where sufficient switching costs, network effects, and other sources of customer lock-in capable of thwarting such an outcome are absent. And it raises the question - if these companies haven't been able to make money during the past golden-era decade of demand growth, what hope is there for them in an environment of demand saturation which sees aggregate industry demand radically decelerate?

One thing investors have forgotten of late - as they did in the late 1990s - is that the switching costs for consumers of (most) online services is relatively low. E-commerce has removed many of the frictions associated with time and space that exist in the real world, and this is what has enabled the platforms to grow so rapidly, and capture share off old-world industries. However, this lack of friction cuts both ways. With some important exceptions, the lack of these frictions means that it is also very easy for customers to shift to alternative platforms/apps/services. It takes merely a few minutes, for instance, to download and set up a new food delivery app.

In the 'real world', frictions exist. In traditional bricks and mortar retail, for instance, there is a real time cost for customers associated with shopping around. If you see an item you like in the store, you're aware you might be able to find it cheaper elsewhere, but you don't necessarily know where to find it, nor have the time or inclination to shop around to save $5-10. These frictions have been a source of profit opportunity for incumbents, and even today, B&M retail is vastly more profitable than e-commerce. However, such frictions don't exist in the online world. It is easy for customers to compare prices online and simply choose the cheapest option. One might use Uber for years, but change to Lyft or some other service as soon as a friend tells you, "use XYZ, it's cheaper".

In addition, customer acquisition is more commoditised in the online space. Anyone can pay Google for traffic, or pay Facebook for ads on a click-through basis. There is less benefit to incumbency, because customer acquisition/marketing costs become variable, on a per-customer basis. This means a lot of the potential profit pool is competed away in high customer acquisition costs - if you can make $5 per customer on a mobile game, it makes sense to pay not only $1 to Facebook per app download, but also $2, $3, $4, and even $4.99. The profit pool can therefore be easily competed away in the form of escalating CACs as the supply of available apps/services continues to grow.

These are the real reasons why profits are so rare, despite very rapid growth: it's not a lack of scale; it's because these are lousy businesses, with limited differentiation or pricing power - what would traditionally be described as 'commodity businesses'. I don't buy the argument, for instance, that, at US$56bn in revenues, still has not achieved economic scale (JD still loses money). Nonsense. US$56bn already makes it one of the biggest businesses in the world. The truth is, it doesn't make any money because it's a lousy business - if it was a good business it would already be making a lot of money. There is a lot of competition, and limited differentiation, with little to no frictions with respect to price comparisons. When purchasing goods online, customers show limited brand loyalty and just choose the cheapest option, just like they do with airline tickets, which is why airlines have been lousy investments over the years. This is why it has only been possible to grow and acquire 'scale'/customers/volumes by offering prices so low as to give away all your profits. As soon as you try to raise prices, customers go elsewhere.

As bad as the status quo currently is for many tech companies, however, it could well be about to get much worse, because the level of competitive intensity is likely to radically intensify from here, driven by three factors: (1) increasing eyeball-hour saturation on the demand side, which results in demand transitioning from the steep section of the S-curve, towards the far right plateau; (2) continuing exponential growth in supply as VC funds continue to poor into tech start-ups; Softbank's Vision Fund (attempts to) raise as much as US$500bn in seed capital; and a record level of tech IPOs are expected to occur this year; and (3) old economy companies/industries also race to get online.

The latter is also a very significant and under-appreciated development. As the tech industry has rapidly grown, taken market share off traditional businesses, and garnered an increasing amount of media attention, old world companies have started to rush to digitise their businesses and transition their own sales channels online as well. Traditional retail, for instance, is investing heavily into 'omni-channel' capability; traditional media companies are investing in their own streaming services; and a plethora of other businesses are also setting up online storefronts and/or payment systems.

This trend is now fairly widespread. I was floored to see last week, for instance, that Gazprom Neft - the oil subsidiary of the Russian gas giant Gazprom - which is regarded by investors (somewhat unfairly) to be one of the most inefficient and corrupt state-backed oil companies on the planet, has launched an app that allows its customers - when refueling at one of Gazprom Neft's stations - to pay for their gas with their smartphones, without leaving their car.

Now let's think about that for a second: Even Gazprom is adopting digital payments for its customers. Ask yourself this - how hard is it, really, to launch all these online services/platforms/payment systems, if even a state-owned oil company in a developing country can do so? And if everyone can do it (and is doing it), the replacement cost is obviously relatively low (just get a few smart young coders in to write the software), and why do investors think such easily-replicable services/software are so immensely valuable?

Now, granted, there are some very good tech businesses out there, which enjoy genuine network effects and other sources of customer/supplier lock in that will render them relatively immune to these mundane competitive forces of demand and supply. But their number might be fewer than investors realise. Take the online travel booking platforms, for instance (e.g. Priceline, Expedia, Webjet), which have hitherto been very profitable - partly due to the frictions associated with getting hotel inventory (which has to be done one hotel at a time). Ctrip in China (which has about 50% market share in China) was making 30% operating margins as recently as 2011, but profits have since collapsed to less than a third of that amount, as a market share shit fight broke out, which resulted in heavy discounting and industry losses. Supply grew faster than demand and profitability collapsed.

The market has consolidated down some in the past few years, but Ctrip's profitability still remains depressed. It is possible it recovers (and the stock is certainly priced that way), but online giants such as Alibaba are competing very aggressively in this space, and have a structural advantage in terms of customer acquisition costs. China's airlines are also launching their own online booking services and are attempting to disintermediate the OTAs. So there are still limited constraints on supply, and the reality is, customers will choose the platform offering the lowest prices, and suppliers of hotel or airline seat inventory will use the platforms that offer them the best prices (and lowest take rate). It is therefore entirely possible the industry remains highly competitive and relatively unprofitable indefinitely, reflecting the fact that many aspects of these platforms are little more than computer code, that can be easily replicated by armies of smart coders.

As demand growth slows down, tech companies of all stripes - accustomed to rapid growth - are likely going to start competing with each other aggressively for market share - not least because growth has always been their marching beat, and is what their investors (and stock prices) demand. And they are going to be doing so in an environment where aggregate supply is starting to far outgrow aggregate demand. Traditional economics would suggest that it is hard to see how mushrooming losses are not an inevitable outcome, and this is exactly what happened in the boom and bust.

Markets are not likely to take these developments well. Tech valuations are extremely elevated, and bake in an expectation of both continuing rapid top line and user growth, and sharply rising profitability as scale is built. Instead, they might get slowing user growth/revenues (or even falling revenues in some instances), and mushrooming losses. The de-ratings are apt to be severe, and at some point the narrative will 'flip', and investors will start to look at these businesses in a very different light. They won't see sexy growth stories, but instead businesses going ex-growth in commodified industries, with extremely uncertain revenue and earnings outlooks.

The fact that this outcome is on the horizon is probably one reason why VC funds are currently rushing to IPO their privately-funded, loss-making investees at present (2019 is expected to be a record year for tech IPOs). There is a window to monetise these loss-making businesses on the cusp of a rapid slowdown in user/revenue growth at nosebleed valuations at present, but it is unlikely to remain open for very long, because at some point investors are going to wake up and realise the emperor has no clothes. Investors are soon going to realise companies like Dropbox (IPOed last year) are likely to remain unprofitable, and probably won't survive long term.

A tech bust could also have a negative impact on the economy - particularly the US economy. The tech boom has been positive for the economy as it has acted as a means to redistribute excess savings held by sovereign wealth funds, high net worth individuals and endowments, etc, into millennial salaries, as the capital raisings have funded mushrooming Unicorn losses which have been channeled primarily into the high incomes of 20-something coders. The largess has also found its way into high real estate prices in the Valley (amongst other things), and this stimulus could come to an abrupt end.

A tech bust could also harm the advertising giant Facebook (and also Google, to a lesser extent). How much of Facebook's mushrooming ad revenue comes from loss making tech businesses desperate to acquire new customers, who have been willing to pay through the nose for click-throughs? If ad budgets get curtailed, it might not only slow Facebook's ad growth, but even (gulp) cause it to decline, amidst a backdrop of rapidly rising costs (associated with growing platform monitoring/compliance issues). And as the eyeball-hour attention market is saturated, all future innovations in online media/games/services will have to come at the expense of the eyeball-hours currently being captured by existing incumbents. Increasingly, if people are spending more time (for e.g.) playing Fortnite, they will be spending less time on Facebook, as the attention market is set to imminently become a zero-sum game.

I could be wrong. Perhaps I'm old hat. I've sat almost the entire tech boom out, and still have zero exposure. I've certainly been wrong to date. But it looks to me like a demand/supply imbalance is brewing, and investor optimism has been carried away. Time will tell.

Comments welcome.



  1. Great article!

    In general I do agree with your thesis. It's scary to invest in industries where capital is flowing into the market. Now is the time old moats are getting destroyed or at least weakend by partially irrational capital allocation. Often it is extremely hard to predict which industries are safe and which aren't. One example is Regus which lost a ton of value as people are still funding WeWork with huge amounts of capital without any appereant logic.

    Don't forget that this will turn at some point and a lot of great (tech) businesses will be trading for cheap valuations while there moats are getting stronger at the same time. I would agrue this has been the case in the news publishing space until a couple of months ago. VC money is flowing out of the sector, unprofitable companies like Buzzfeed have to cut cost and fire employees. At the same time old newspaper companies that have partially mastered the digital transition are growing in subscriber numbers and profitability (WSJ, NYT, major newspapers in Europe).

    As a result I argue it is worth studing those tech businesses, if you are patient and price sensitive (basically never pay for future growth). You are setting yourself up to find the next Priceline around the bottom of the next tech crash. Dave Scaefer at Cogent Communications did exatcly that at the bottom of the fiber boom in the early 2000s.

    Regarding barriers to entry in the tech space I disagree with you in some points:
    1. CAC is the new rent - being on the 1st spot of Google search results is a big plus - your CAC are much lower as for your competitors - replacement cost are huge - and they are growing as Google and Facebook are rasing prices. They can raise prices now because there marketpalces are fully developed and they don't need top attract massive amounts of businesses/consumers
    2. Getting your app installed on your customers phone (there is a limited amount of apps people are willing to install) + a loyalty program like Amazon Prime or Zalando Plus drives frequent repeat purchases and creates a psychological lock in (in Buffett and Munger speech mindshare) - it is increadibly hard to break once established and those companies get more and more share of wallet of those loyal customers

    Therefore I think some tech businesses will stay good businesses and are woth a look. Many/ the majoriry are not.

    Happy to discuss and learn something new.


    1. Thanks WM - great comments.

      Agree there are going to be opportunities during the fallout. I also believe there are opportunities in the traditional companies (e.g. Regus, B&M retail), which as you say are having to compete at present with irrational competition, which will go away at some point, and the disruption fears (and margin pressures) should ease up. This might be the point where the long standing under-performance of value vs. growth over the past decade reverses.

      I also agree that there are some genuine moats in this space, and the leaders in each segment probably stand to benefit from market consolidation and improved pricing as irrational competitors disappear. There could be some buying opportunities amidst the carnage, as history suggests that when a sector sell-off happens, everything goes down - even the companies well placed to pick up market share and benefit from market consolidation on the other side.

      It's going to be interesting to watch the cycle play out. I think one of the triggers for the next tech wreck will be the point at which the aggregate amount of losses being experienced by privately-funded tech start-ups exceeds the pace of new money flowing into tech VC funds/Softbank etc. At that point capital will become scarce and privately-funded tech valuations will plummet. The likes of WeWork will probably end up going bankrupt IMO.


    2. PS I didn't mean to imply I think there is an opportunity specifically in Regus at present. I don't. I meant to say generally speaking, traditional incumbents whose profits and share prices have been hammered down by irrational competition, might offer opportunities at some point as this irrational competition eases up. In many cases we are not yet at that point though - things are likely to get worse before they get better.

  2. I agree with your analysis. Great article, especially concerning Booking/Priceline. I'm worried about their margins as well, but do like the company.

    Another recent idea I had was investing in Chinese airports, there are some short term pains, but Beijing capital international airport (694) and Regal international airport (357) both look interesting to me.

    A question if I may: How do you buy into Russian stocks? Do you use ADR shares or do you have direct market access?

    Thanks for your great articles!


    1. Hi Wubbe Bos,

      Thanks for your comment. I have invested in Chinese airports in the past and made money. I actually blogged about Beijing Capital in 2017. That has been my least successful Chinese airport investment, although I still made money - just not a whole lot, which suggests that the risk/reward was ok at the time of purchase.

      In addition to concerns about the impact of the upcoming launch of the second airport, which have long been in the price, BCIA has been unfavourably impacted by (1) a related-party transaction from the parent to transfer in the GTC building at a very elevated price - they are already operating and market money off the building, but evidentally the parent owned it, and they are buying it in at a lofty price - about 1.5 years of group earnings; and (2) the govt has made a decision to remove the airport construction fee, which is likely to entail a very significant hit to earnings, offsetting the (anticipated) impact from improved duty free concession terms.

      On the point of Russian stocks, historically primarily via London-listed ADRs/GDRs (on the London International market), but I also have direct market access now and am doing more directly.


  3. As far as B2B software companies though, there are some real bargains there. If you know how to look. Some of these companies actually generate cash while growing despite not making a profit because of their negative working capital. And revenue tend to be very sticky if you select the right ones.

    Value investors ignore them and retail investors don't know how to value them. So at least in the micro and small cap area there is a lot of mispricing going on.

    1. He mentions B2B/SaaS as a different case. There companies are profitable and more sticky. Look at a company like Atlassian (disclosure: I've held shares since shortly after IPO) - once a company uses JIRA or Confluence, they quickly look towards the other. Once all of your data is there, it's very difficult, costly, and time consuming to move to a different platform.

    2. I agree. Software is much more integrated into a users day to day use and has far higher switching costs that allows are reliable churn to be calculated. E-commerce are borrowing SaaS metrics like LTV/CAC where there is no LTV that can be calculated as churn is too difficult to assess and also likely to be extremely high. Like Lyall says customers will move around to who is offering the best deal (low switching costs). Because e-commerce companies are kidding themselves on LTV they are overpaying for CAC. This is the only way to generate revenue growth but there is no operating leverage generate. The business models will end badly once the capital taps are turned off as there will be both revenue going backwards and no profitability as there is no customer loyalty. That is why Amazon and Costco are build membership models.

    3. Whats the view on Atlassian. Here are my thoughts comparing to Microsoft. When I look at Microsoft vs Atlassian it is any interesting comparison. Microsoft is one of the best software companies of all time so it’s a nice comparison for Atlassian.

      In 1999 Microsoft was growing revenue 30% and in the 5 years prior was growing faster.

      Microsoft had a $20B revenue line in 1999 while earning 53% EBITDA margin. Microsoft was trading at a valuation of EV/Revenue of 24x LTM and 20x fwd, 66x LTM PER and 58x fwd.
      Earnings recovered within 4 years, the real damage was done on the multiple de-rating. By 2017 earnings were 2.7x higher than 2000 but fwd PER was only 21x PER.

      Lets fast forward and compare to Atalssian which in 2018 grew revenue at 38% for $1.2B revenue while earning 2.8% EBITDA margin.

      Atlassian is currently trading at EV/Rev of 23x LTM and 17x fwd, 66x LTM PER and 58x fwd.

      Lets say Atlassian reverts to a normalised LTM EV/Sales of 6.8x which Microsoft is trading on now.

      If Atlassian earns consensus revenue of $1.9B and EBITDA of $512m, margins improve to 27% in FY21 from 2.8% currently, and trades on 6.8x trailing EV/Revenue then at 1 July 2021 the EV will be $12.9B and EV/EBITDA of 25x. This implies a fall in EV of 47% over the next 2+ years to 1 July 2021. If Atlassian trades at a Microsoft EBITDA multiple of 15.3x this implies an EV fall of 68% over the next 2+ years. i.e. A similar outcome to Microsfot the buysiness improves significantly but the SP declines. This omits the possibility that the consensus expectations are actually too aggressive if there is a downturn in the economy.

    4. I think if you are very confident they will keep growing at 30-40% per year for 10-15 years it is a great long term holding. It will have $60 billion in revenue in 2035. 15% profit margin and a 20x PE on that is $180 billion market cap. Add some buybacks and you get a 10xer. Which is a 17% IRR.

      The issue is that you need to be very confident that they maintain a lead and keep growing as aggressively. And if you are a patient you might get a company like this for a lot less somewhere in the next few years.

      It might not be a bad strategy to find dominant software companies like this at <10x revenue multiple that grow 20-30% + with sticky revenues and make a basket with 2-3% each. And then just buy and forget (unless the thesis changes).

    5. The base rates for companies with sales between $1.25B to $2.5B to grow sales at 30% for 10 years is 0.7%. It is probably even lower for software companies given the high margins.

    6. Mamos - Nice stat. Thanks.

  4. What are your thoughts on public block chains disrupting the network effect of companies like Facebook? If a way is found to have a social media network that is essentially owned by the users, where coins are distributed when adds are bought with it, you could actually be paid to use a social network.

    And you would not have the trust issues. Allthough it might need certain break throughs like bot detection and automatically removing child porn and things like that (since there would not really be a central moderation).

    Free cannot disrupt free easily, but if you get paid to use it...

  5. Fantastic post LT. Your posts make me think in a new way.

    No doubt a tech bust would have severe implications and nasty spillovers, some more localized than others.

    Your post has me thinking though, in the event supply exceeds demand for attention, I can't help but to believe how much CAC will increase. A large portion of that CAC will be advertising expense and perhaps, the ad tech businesses will likely benefit as they fight for attention.

  6. Another great post.

    Would the central point be that this is a movie no different from many that we've seen before? Whether the jet age, the Nifty Fifty, the Dot Bomb era, or many others, where there is much excitement premised on the dawning of a new age, the market always sees endless demand and forgets that intense capital competition leaves little for most.

    Or said differently, where the wise first go, fools eventually follow. In fact, there's a plethora of appropriate, pithy aphorisms we could apply.

    A simple solution: don't go to where there is much excitement (something you are clearly well versed in).

    On a related subject, I love the way all this capital being thrown at these exciting "high tech" upstarts, is actually aiding many old world dinosaurs. Take FLT. All these new tech entrants are spending much time, energy and capital competing against each other to facilitate the consumer in finding the best product at the lowest price. So what do many of these consumers do? They say thank you very much, I will now take that to my nearest Flight Centre store and demand that they nearly match it.

    It's "showrooming" in reverse. The online brigade do the work, FLT gets the revenue. That's what I call technology enabled productivity gains.

    Not bad for a dinosaur.

  7. Generally very much agree with your thesis in supply and demand. Innovation in technology has been with us for centuries, and they usually are valued very high in the beginning relative their economic profits, e.g. railway, cars, semiconductor, and internet. Picking the winners is key to everything including both old and new industries. It is exactly the game of investing. Valuable businesses are rare just as valuable insights.

    The best way is probably being open-minded, just like Stan Druckenmiller used to say. Picking a winner in certain new technology could be very rewarding if one can; also failing to recognize an obsolete industry could also be very damaging, such as newspapers. One probably should be as open towards Amazon, Netflix, Facebook as the ones being disrupted such as TV and retail.

  8. Hey Lyall, appreciate the thoughtfulness and time it took to write this post. Agree fundamentally with diagnose of the S curve for online businesses. But the real crunch is are more likely the traditional B&M you talked about. For them to be able to compete effectively, they will need to pay up and hire talent who on average is more expensive versus traditional labor, invest in technology, R&D, which in most cases are incremental to their existing cost structure, all the while managing culture clashes between the millennial workforce versus their existing employees. The leadership are most likely fiduciaries with 3-5 year mandates versus the longer term nature of these investments that are required. It is a very difficult task to pull off.

    It is in my view more likely that internet/technology businesses continue to grow at the expense of traditional. They may be 'unprofitable' on the P&L, but unit economics in most cases are fine and enable the reinvestment. They are in most cases creating something of value for their customers, a brand customers loves, or conveniences of services/product, or fundamentally disrupting large industries and reshuffling value chain economics.

    Yes, all these competition is enabled by the extremely cheap cost of capital. But this is merely a redistribution from financial capital (abundant) to human capital (scarce). The system is arguably working amazingly well, this is capitalism at work.

  9. Hi Lyall,

    Thank you for penning another thought-provoking piece.

    I (and I am sure many others) would also love to peruse your detailed views on B2B SaaS, covering both established businesses e.g. Salesforce, WiseTech, or even Microsoft, and emerging "platform" businesses e.g. Twilio, Okta, Audinate, Teladoc. Perhaps this is a good idea for a "Part II" for this article!

    Also, are there any such businesses you actually like and will be buy/hold?

  10. Hi Lyall,

    Thank you for penning another thought-provoking piece.

    I (and I am sure many others) would also love to peruse your detailed views on B2B SaaS, covering both established businesses e.g. Salesforce, WiseTech, or even Microsoft, and emerging "platform" businesses e.g. Twilio, Okta, Audinate, Teladoc. Perhaps this is a good idea for a "Part II" for this article!

    Also, are there any such businesses you actually like and will be buy/hold?

  11. What a great article. Regarding the demand for online services you've mentioned, there is so much improvement needed when talking about this new concept. Obstacles such as internet outages are tremendously impacting the quality of such content and organizations need to invest more in developing quality prevention measures.

  12. I have eviscerated your article a number of of the times in light of the way wherein that your centers of seeing are obliged from each other individual by and clearing. It is an phenomenal substance for each peruser. Quality cybersecurity services washington dc