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🛰 Facebook Resilience, Changing VC, Auto Antifragility – The VUCA Observatory #25

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Hi there, glad you could make it. In this issue we talk about the strange resilience of Google and Fa
 
September 30 · Issue #25 · View online
The VUCA Observatory
Hi there,
glad you could make it.
In this issue we talk about the strange resilience of Google and Facebook in the eye of what would be catastrophic news for anybody else, the changing landscape of venture capital and how we should distrust the dominant narratives in emerging technologies.
While we’re at it: could you do me a favour? This is issue 4 after the restart, and I’d really like to get some feedback. What works for you, what doesn’t? Let me know!
With that out of the way, let’s jump right in.

Crisis, what Crisis?
Whoever is running Investor Relations at Facebook is doing one hell of a job. Facebook had a bit of a week: two high-profile tell-alls of Execs that left the companies the social networking giant had bought, after long tenure and with leaving considerable money on the table, a major security breach potentially exposing 50 million profiles, and a new exposé by Kashmir Hill showcasing how the firm is mis-using data ostensibly collected for security purposes to better target advertising.
And yet, looking at the market data, you wouldn’t know it. The Fall Out from Techlash at the beginning of the year, from the Cambridge Analytica scandal, the election meddling, aiding genocide in Myanmar, have all been so minimal that the market has learned not to take this serious anymore. And so has Mr. Zuckerberg. Privacy scandal after privacy scandal, Facebook managed to ride it out and grow in the process.
And they’re not in poor company: Google has been in the news as well for their poorly hidden attempt at coupling the Chrome Browser to a Google Identity. But as we’ve seen with the company’s treatment of users opting to “disable location tracking” which didn’t actually disable location tracking, the fall-out of this will be minimal.
If ever there has been any doubt about the defensibility of business models built with network effects, it can be safely laid to rest. No other business can survive one scandal of this magnitude, let alone several in a week. For reference, have a look at the market capitalization of Tesla once the SEC announced to indeed pursue legal action against it’s CEO. The result was shareholders roughly $8bn poorer. And yet, this defensibility needs to be maintained, which doesn’t come cheap. Apparently, Google is willing to part with $12bn in 2019 just to stay the default search engine on rival Apple’s iOS.

Think VC is overheating? It’s just getting started.
It’s an open secret in VC land that VC, the asset class, isn’t performing all that well. And yet, the segment has grown tremendously. So much so that over the last decade it absorbed a dramatic inflow while now changing its overall yield curve much. This, so the argument goes, shows that VC is scalable. The counterargument goes something like this: there’s only so many good ideas going around in the world, and with increasing amounts of cash chasing these good ideas, prices get astronomical and lose any meaningful relation to the underlying economy they participate in.
And anecdotally, the increase in round valuations that we observe over the last decade or so seem extraordinary. Flickr sold to Yahoo for $35m in 2005. The median Series A in 2018 is valued at $30m post.
One reason for the exuberance may lie with Softbank’s Vision fund which can bring $92b to bear on whatever target they like, but also presents an increasingly plausible exit option for companies working on anything from ridehailing to pre-fab construction. The titans of Silican Valley are having a hard time to adjust to this new climate, with KPCB seemingly disintegrating, and Social Capital imploding.
And yet, with the dynamics of winner-takes-most markets, the skewiness of VC will only accelerate, given the tremendous opportunities ahead, and the defensibility of businesses succeeding (see previous chapter.)
Second Order Effects in Mobility?
Do you predict the automobile, or do you anticipate the traffic jam? It’s second order effects that make forecasting hard, and stories interesting. No wonder the picture of car and traffic jam came from a Sci Fi author. And it’s so relatable in the current environment of uncertainty around how the future of mobility will look like. And that’s even before we get to SEC lawsuits that involve reference to marijuana jokes from the CEO of a global auto brand.
There’s the theory that Tesla should be considered an electricity service company, not a car manufacturer, and their South Australia battery installation – built on the twitter whims of its sometimes erratic CEO – is performing miles better than anyone would have anticipated.
But it seems likewise premature to discount German Auto just yet. While eeryone, and CleanTechnica particularly so, is usually quick to dismiss German efforts at greening up and electrifiying their offering, there seems to be a different narrative evolving, a narrative that could be straight out of Nassim Taleb’s Antifragile: Dieselgate happened at just the right moment to change the course of the ship, as it was just the right stress before the fatal blow could happen. We’ll have to see, of course, how the electrification pans out, and I’m sure we’re still in for plenty of surprises – probably not all as benign, and yet unforeseen, as Daimler’s CEO stepping down – but it’s a nice reminder that the dominant narrative at the time rarely is the one that bears out.
Things happen
End Notes
That’s it for this week.
Send me notes, forward the newsletter to your friends, colleagues, and business partners, and as always: see you next week!
Martin

The VUCA Observatory is published by Martin Spindler (@mjays). Martin is a Senior Strategist at hy - the Axel Springer Ecosystem firm.
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