2021 Predictions & Person of the YearDecember 29, 2020
There Is No Fate
“Plans are worthless, but planning is everything.” President Eisenhower tweeted that in 1957 (it was a speech, Ed.). The value of a prediction is not accuracy (though it is better to be right than wrong), but the reasoning and conversation that the prediction catalyzes. Predictions can also be self-fulfilling prophecies, as the best way to predict the future is to make it … and predictions can make it (the future). After last year’s predictions, seven Fortune 100 CEOs came to me for advice. Or maybe they thought if I saw what great guys they were, I’d be less critical of them or their firm … But I digress.
We have been predicting/evangelizing/pimping big investments in recurring revenue businesses — what I call “rundles.” A great rundle (e.g., Amazon Prime) requires multiple product lines, robust tech infrastructure, and the stomach/capital to endure staggering losses in EBITDA and be recast as a subscription-based firm valued at a multiple of revenues. The path to a rundle is a useful lens through which to evaluate a firm’s product strategy, upgrade cycle, churn, pricing, value drivers, etc. I understand Apple, AT&T/CNN, Disney, Walmart, and other rundle-emergent companies better now that I’ve viewed them through that lens — and their leadership does as well.
Note: After reading the previous two paragraphs, my observation is that I leave 2020 as I entered it: desperate for other people’s affirmation and rabidly insecure. Anyway.
Predictions are more fun when you’re right (Amazon acquiring Whole Foods, WeWork implosion, and Quibi DOA). However, it’s likely more illuminating to revisit your misses (Tesla). How was I so spectacularly wrong on that firm? Likely because I ignored a trusted maxim: Never bet against a company with a great product. But on a deeper level, I had not appreciated the power of what my colleague Aswath Damodaran calls “story stocks,” and the influence a good story can have on valuations.
Looking back at predictions is so useful (done rigorously, it’s called the “scientific method”) that we incorporate it into our annual Predictions presentation. I don’t love revisiting my mistakes (though I’m still pumped for the incoming Bloomberg/Buttigieg administration), but doing so can lubricate the rails of your reasoning. We often project as much as we predict, tasking the future with our own hopes and fears. Reviewing predictions, whether they were right or wrong, provides insight into ourselves.
Ok, enough of that bulls**t … let’s look at an abridged set of our 2021 predictions.
2021: Less Terrible
2021 will be about the macro trend that is driving the most change in our lives and the market: The Great Dispersion. Dispersion is the distribution of products and services over a wider area where and when they’re needed most, bypassing gatekeepers and removing unnecessary friction and cost. This year, companies bypassed traditional channels of distribution like stores, movie theaters, and gyms in favor of faster, contactless deliveries and digital unlocks. In many ways, this was a blessing — we saved time and reduced our exposure to the virus. Yet dispersion also risks isolating us and in turn, suppressing our empathy, which could have profound negative consequences.
Similar to the virus, dispersion is indifferent to our wants. That said, we can plan for it — and the planning is everything. Here are some of the impacts of dispersion I see in 2021.
Resto Becomes a $1000 Stock and Sonos Hits $40
Working from home is the dispersal of work. Covid-19 has mobilized a trillion-dollar reallocation of capital from commercial to residential real estate. The capital and time we once committed to offices and commuting will pour into home improvement. The carpet that looked sad and old pre-pandemic is now intolerable, and your TV is not complete without a Sonos sound beam. Both plywood costs and residential real estate market prices have hit all-time highs, and will continue to ascend.
Airbnb Hits $200/share and Gets Into Short-Term Office Space
Hospitality is dispersing — from a few destinations to many, from hotel towers to individual rooms — and value is shifting from from asset-heavy hotel companies to the network-based Airbnb. Airbnb is a juggernaut. It has the strongest brand in hospitality (nobody says, “I got an Expedia in Austin”), a deep moat (seven million rooms worldwide), impressive human resources in design and technology, and a greater percentage of engineers than many other “tech” companies.
The next phase in Airbnb’s strategic evolution is already in sight, courtesy of the pandemic. As knowledge workers come back to the office after a year of working from home, they won’t want to give up their newfound flexibility. The rise of gig workers, freelancers, and remote work will drive a surge in what we used to call coworking, and Airbnb is best positioned to get in front of these trends.
Walmart Goes Deeper into Healthcare via Acquisition
The dispersion of healthcare will be among the most exciting and disruptive transitions of stakeholder value in history. Our healthcare in this country is shameful. We spend more, but have worse outcomes. Healthcare in America is like living in San Francisco: expensive, but bad.
There’s trillions of dollars in opportunity here. Amazon and Walmart are moving into this space through acquisition, thereby fighting the largest proxy war in the business world: healthcare. Walmart has the scale and incentive to make an impact, as well as some inherent advantages over Amazon. Rural Americans are closer on average to a Walmart than to a hospital, and as the largest private employer in the world, Walmart’s healthcare costs are its biggest expense after wages. The Bentonville firm already operates primary care clinics where an adult can get a physical for $30; it acquired Carezone, a prescription management app, in June. Look out for more.
Bitcoin Surpasses $50,000
The dispersion of money might some day make the rest of these trends look tiny. Bitcoin-boosters believe the cryptocurrency could restructure global finance and politics. It is a potential hedge against inflation, it provides a safer haven for wealth in unstable economies, and its institutional acceptance and infrastructure continues to strengthen.
Global currencies command massive value. The world’s gold supply is worth over $9 trillion, and over $19 trillion is held in U.S. dollars. That value is leaking into bitcoin — investors have traded out of gold as bitcoin has gone on its recent run. Right now, the total bitcoin supply has a value of around $400 billion. Even as an alternative currency with limited application, it likely has a lot of upside. Think about Bitcoin as if it were a company, and the value of coins in circulation were its market cap. $400 billion suggests equivalence with Johnson & Johnson … that feels undervalued. For many investors, the Fear-of-Being-an-Idiot factor (FOBI™) will inspire purchases, just in case it goes to $1 million.
Which. It. Could.
Robinhood Is the New Menace
Bitcoin may become a pillar of the world economy. However, at present, it’s a speculative investment. And speculative investments are the cancer in the cloud of dispersion that’s creating systemic risk in the securities trading business. There is some upside to getting more people more access to financial instruments, but there’s also a ton of downside risk. 2021 is the year that a new firm joins Uber, Lyft, and Facebook in the Menace Economy (the pursuit of wealth at the expense of other human beings). That menace is online trading app Robinhood.
In contrast to rivals such as Charles Schwab that encourage investing, Robinhood gamifies trading. Gambling addiction doesn’t depend on green felt and free drinks; today, boredom and a smartphone is enough.
Why would they do that? At Robinhood, users aren’t customers, they’re products. More specifically, their trades are the product, which Robinhood sells to market makers. The more their users trade, the more money Robinhood makes. And Robinhood users make a lot of trades — 9 times more trades than E-Trade users, 40 times more than Schwab users (88 times more options trades) relative to account size — a rate that makes no sense for the young, non-wealthy, and inexperienced traders flocking to the platform. But it makes great sense for Robinhood, which makes more money selling those orders than it could educating people re the wisdom of low-cost index funds, and occasional buy-and-hold company stocks. That is, it makes sense for the collision of idolatry of money, weakened regulatory institutions, and young-adult depression that is Robinhood.
Regulators including Finra, the SEC, and the Commonwealth of Massachusetts have levied fines or initiated actions against the company for mistreating its users, but at a $11 billion private market valuation, with a $20 billion IPO expected soon, Robinhood investors have done the math and decided the smart thing to do is to ignore the law, as well as any incidental depression and suicide.
Full disclosure: I f**king hate Robinhood.
2021 Time Person of the Year: The Founder of Amazon
Let’s end on a positive note. Something else that is getting dispersed in 2021? Philanthropy. Leading the charge is one of history’s most successful entrepreneurs: MacKenzie Scott, who doesn’t get the recognition she deserves for her role in founding Amazon. In 2020, Ms. Scott gave away over $4 billion, quietly and efficiently, getting the money to people on the ground who could use it to make an impact right away. Contrast her data-driven, results-oriented approach with the transactional/RFP/naming rights testosterone that accompanies most billionaire giving, and we are brought back to the essence of … “Giving.”
Will others also decide Ms. Scott the person of the year? Or might this prediction inspire more giving and remind us that being American means a lot of things, not the least of which is … generosity. Ms. Scott, with her innovation and approach to giving, has made America burn brighter. We predict she makes our country a better place. Indeed, she already has, and for that, MacKenzie Scott is our 2020 Person of the Year.
Life is so rich,
P.S. For all my 2021 predictions, watch a recording of our livestream presentation here. And … I’ve condensed my 2nd-year MBA Brand Strategy class into a 3-week intensive learning experience: the Brand Strategy Sprint. 94% of the people who took the last one said it had a positive impact on their professional development and 88% said they learned something they could immediately implement in their work. I’d say that’s a good investment.