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🛰 Smart Home Competition, Amazon Ads, Longer VC – The VUCA Observatory #27

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Hi, glad you could make it. We’ve got a lot to covers this week, from the question of whether smart h
 
October 14 · Issue #27 · View online
The VUCA Observatory
Hi,
glad you could make it.
We’ve got a lot to covers this week, from the question of whether smart homes actually are a new paradigm of computing (no, and the questions leaves a bad taste in my mouth), Amazon’s embrace of ads (the margin has to come from somewhere), and the changing Landscape of VC. So let’s jump right in.
(Oh, but before we do: could you do me a favor? Could you forward this episode to three people, be that colleagues, friends, business partners, you name it, that are interested in digital, strategy and ecosystems?)

The next computing paradigm
Let’s say for a moment that you fully buy into the notion that Software is Eating the world. Everything that can be improved by migrating to software processes will be.
I’ve been watching this bear out in the Smart Home space for years in slow motion now. For those who’ve just recently signed up for this newsletter, my background used to be in Energy – energy prices comparisons, to be more precise – before I jumped and became an independent strategy consultant for IoT with a strong focus on – initially – smart homes and wearables.
There’s so many platforms and startups that tried to own this, that saw what’s happening in other domains, figured “platforms are clearly what’s winning, let’s try that then” and failed miserably. Sure, the technology was always pricey (and remains so to this day), but it is quite intriguing to see that the old battles heat up again, although it is quite curious that the lines would be drawn not between startups, but between the big players we know from the earlier iteration of the platform wars.
It’s clear that all the big players are angling for a position in the coming onslaught of compute devices, although I disagree with Ben Thompson’s assessment that tie-in to services is the most crucial factor to succeed. To my eyes, the tie-in into the personal data ecosystem of customers is the most important element, as any smart home play is ultimately about intentionality, not just control of devices. And as long as our visions or IoT are hampered either by data-hungry ad companies, or even worse, security so poor it doesn’t even deserve the name, we will run head-first into a bifurcated info ecosystem, where home security and confidentiality are truly class markers: Privacy becomes a luxury good.
The Battle for the Home
A Future Where Everything Becomes a Computer Is as Creepy as You Feared
Over nine million cameras and DVRs open to APTs, botnet herders, and voyeurs
Ads
The beauty — in terms of aesthetics of a business case or scenario — of Amazon has always been that it was just so different. Compared to the Organizing the Worlds Information ambition of Google or the Connect Everybody and Hope for the Best delusions of Facebook, Amazon’s business, while sprawling, always looked fairly straightforward. There were no weird secondary monetization streams that had to fill as stopgaps for the primary interaction to remain free and serve as moats. The moats were old-school, vans and planes economies of scale moats. Augmented by data, sure, but fairly straightforward nonetheless.
So it’s all the more surprising that Amazon is so rapidly commercializing its prime asset: its search results. Amazon has ascended to the third largest online ad provider, after Google and Facebook, and to me, that’s slightly worrying, given the strategic taxes a business built or dramatically profiting from ads is incurring.
Ads, so the story goes, thrive from more data. But once you introduce ads into the story of what you’re measuring, you run into a sort of Heisenberg effect, as you pollute your original data source. And to counter that, you suddenly have to search for new signal, leading you to search for more and more data, until, ultimately, even security measures become data points to sell ad inventory against, as has been the case with Facebook that we discussed last week.
That Amazon is now entering the ads business may speak to their tremendous strength in e-Commerce. For me, it telegraphs a fundamental shift, one that always had to be feared with Amazon: the major growth story may be over, now it’s about milking it.
Google search losing some advertising business to Amazon, agencies say
How Amazon’s Ad Business Could Threaten Google and Facebook - WSJ
Is Alexa Dangerous?
VC
VC is changing in weird ways. That VC had to change was to be expected, after all, companies stay private far longer, and even being admitted to the enchanted forest, with its unicorns and all, isn’t such an exclusive signifier anymore. But I guess the realities take a while to sink in. The asset class used to be strictly time boxed, after all. VC was for getting high-risk ventures off the ground before they’d hit the public markets for growth capital. Now a startup can go all the way to dividends and buybacks while staying private.
But companies staying private longer of course has dramatic effects on how these companies operate, and how VC needs to operate. If founders and executives are incentivized, and governance geared towards, not the quarterly disclosure cycle, but on the next round raised, of course different metrics will seem valuable. VCs, especially the ones writing the larger tickets, want a demonstrated growth story, so growth is what you optimize for. The public markets may have a more diversified view on what story may be applicable for your business, which, sure, will add noise to the conversation you’re having with the market, but it allows you to some extent to choose the model you’re going for.
So far, so good. But the effects often get talked about without the structural shifts, which is why I find the “Startups are a Ponzi scheme” discourse that pops up every so often so tiring: yes, sure, it’s predicated on you finding an exit. But that’s always been the case. The only thing that changed is the market widened.
SoftBank Explores Taking Majority Stake in WeWork - WSJ
Venture capital investment in US companies to hit $100B in 2018 – TechCrunch
Start-up economy is a 'Ponzi scheme,' says Chamath Palihapitiya
Things Happen
Dieter Rams wants Silicon Valley to stop
Bizarre Particles Keep Flying out of Antarctica's Ice, and They Might Shatter Modern Physics
Pentagon Weapons Systems Are Easy Cyberattack Targets, New Report Finds
Rethink Robotics, Pioneer of Collaborative Robots, Shuts Down
​Microsoft open-sources its patent portfolio
End Note
That’s if for this week. As always, let me know what you think at martin@vuca.yt.
Looking forward to next week,
Martin
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