The Mother of All Pivots
-
Audio Recording by George Hahn
The name of the podcast I co-host with Kara Swisher is “Pivot.” I don’t like the name, but I’ve had my hands on the wheel for so long at my own companies, I’m down with sitting in the backseat and occasionally asking, “Are we there yet?” Besides, Kara does most of the work and has a better feel for pods than me. But that’s not what this post is about.
A “pivot” is a strategic change in business model, direction, or target market. Think Netflix’s shift from DVDs to streaming, Adobe’s move to subscription, or Amazon’s launch of AWS. Sounds easy, but real transitions require a staggering investment and a leap of faith that make shareholders queasy. And, most of the time, they don’t work. Meta’s stock doubling in the last six months is a function of the market’s belief that The Zuck is waking up from his Big Gulp, Venti Grande Ayahuasca hallucination re a $20 billion-per-year investment in the metaverse. Meta’s earnings this week revealed Reality Labs (its opium den posing as a business unit) saw revenue decline to $350 million while losing $4 billion in the last 3 months. This means the birth control known as Oculus is pacing to lose the combined profits of Honda, BMW, and General Motors in ’23.
These bets are dwarfed by the greatest redirect in economic history: The Gulf States’ attempt to pivot from oil-based economies to something more sustainable.
Party’s Over
For the past century, the Gulf States have run on oil — and still do. State-owned oil giant Saudi Aramco is now more valuable than the next 10 largest energy companies combined, and last year it booked $161 billion in profits — likely the largest net income figure ever recorded.
Only, there’s a catch. The well is running dry. Regardless of the cadence of the move to renewables, the battery running the Gulf EV goes dead some time this century. Data re the oil remaining under the sand are closely guarded state secrets for the Gulf nations. But Bahrain is expected to run out within the decade, Oman in two decades, and the Kingdom by the end of the century, possibly sooner.
The plan to redirect this wealth into something else is unprecedented: building a next-generation civilization from scratch. Scratch, plus a few trillion dollars.
Its Own Moon
The scale and boldness of this bet is peerless. Let’s start with a 105-mile-long glass-domed mega-city in the desert to house 9 million people with no cars, staffed by robots, and powered entirely by wind and solar. Oh, and it will have a ski resort. And its own moon.
This sci-fi mega-city is the centerpiece of Saudi Arabia’s Neom project, budgeted at $500 billion. Keep in mind, that’s the budget — and 9 out of 10 mega-projects go over budget. Saudi Arabia is also building the Diriyah Gate, a $20 billion property development that will add 20,000 homes to the historic district of Diriyah, and the Red Sea Project, which will build 1,000 homes and 50 hotels across 22 small islands. Meanwhile, Qatar is building its own “city of the future” fit with a 90,000-capacity sports stadium, a dedicated entertainment district (“Entertainment City”), and the country’s first six-star hotel. No ski resort, though.
Bait
The secret sauce in the Gulf State pivot isn’t the oil money itself, however. That’s the bait. The prize is other people’s money. Specifically, rich people’s money. The plan, distilled, is to become the global headquarters for the mega-wealthy. This strategy increasingly makes sense as wealthy people continue to weaponize even democratic governments whose policies crowd more of the spoils into the top .01%.
The best way to attract the rich is to give them what they want. Which in 2023 means three things: luxury hospitality, world-class entertainment, and low taxes. The Gulf has gone all-in on all three.
The Saudis have launched their own ultra-luxury hotel brand, the Boutique Group, and Qatar owns The Plaza Hotel in New York and The Savoy in London. (Pro-tip: These weren’t property or even hotel acquisitions but brand acquisitions.) The United Arab Emirates built the iconic Burj Al Arab and has its own luxury hospitality university. Ever fly Emirates, Etihad, or Qatar airlines? (Think in-air shower spa.)
Middle Eastern interests now own many of the world’s most iconic football clubs, including Manchester City, Paris Saint-Germain, and Newcastle United. Qatar spent $220 billion on the FIFA World Cup (more than the last seven World Cups combined), and many critics accused it of “sportswashing” — using love of sports to distract from its human-rights record. And sportswash it did: The Qatar World Cup had the highest-ever attendance in the tournament’s history, as well as one-fifth of the world population watching the final. I attended, and the investment, sample size of four, had its intended effect.
Saudi Arabia operates a Formula One Grand Prix site and the LIV Golf tournament, which nabbed several high-profile golfers and offered Tiger Woods $800 million to join (he declined). They’ve also pledged billions of dollars toward finding the “Arab Damien Hirst.” The Emiratis are building a $27 billion culture center on Saadiyat Island featuring the Frank Gehry-designed Guggenheim Abu Dhabi and the Jean Nouvel-designed Louvre Abu Dhabi, and Qatar commissioned Nouvel to design its $434 million National Museum of Qatar.
Marketing for these mega-projects is multipronged and not always subtle. Last year, my 12-year-old emerged from a YouTube K-hole and said, “Dad, did you know you can stay in a hotel that’s in the biggest building in the world?” That didn’t sound that great to me, but it did to him — and sure enough, we stayed at the Armani Hotel in the Burj Khalifa, the tallest building in the world, on our World Cup tour of the region. We have been to the Gulf three times in the last six months.
The Middle East is a museum of superlative landmarks, the branding brash and effective. Dubai has the tallest Ferris wheel, Jeddah’s F1 track is the fastest, and after the race, your family of four can drop $2,200 on a lovely but unremarkable dinner at the world’s most expensive Greek restaurant (Nammos). My dad didn’t speak to me for two days when I ordered a $3.25 malt shake at the Lahaina Baskin & Robbins in 1977.
The final puzzle piece: taxes. Or lack thereof. Saudi Arabia, the UAE, Kuwait, and Qatar have some of the world’s lowest tax rates. Similar to what London did 30 years ago, Dubai is committed to deregulating its financial sector. The city is drawing in new firms with reduced licensing fees and capital requirements for hedge funds that domicile there. And the UAE is attracting wealthy Russians with its bold position on the war in Ukraine: neutral.
Hard Power
Speaking of … the only thing that bests soft power is hard power — the ability to deliver violence abroad known as military spending. The Kingdom’s military expenditures reached $75 billion last year, the fifth highest in the world, and more than any nation in Europe except Russia. Big military spenders either invade nations (Iraq, Ukraine) or have the world on tenterhooks guessing where they will invade (Taiwan). To believe Saudi won’t flex its power is naive.
Back to the big shiny stuff they’re building. …
The Elephant in the Private Zoo
What’s not to like about this plan? The sheer audacity is notable. But the Gulf nations have experience with massive projects — you don’t pump 13 million barrels a day without knowing how to build — and a deep appreciation for outside experts. They are recruiting, from the four corners of the Earth, people and small firms that range from banks to ad agencies, paying them multiples of what they can make at home, and asking them to build the future. It’s not without huge issues. Some of those Western experts have quit; according to the Wall Street Journal, Neom CEO Nadhmi al-Nasr is on tape telling underlings in a meeting, “I drive everybody like a slave. When they drop down dead, I celebrate.”
Western consultants being overworked is not what gives us pause about this vision. Al-Nasr’s reference to workers dropping dead was probably meant metaphorically, only it’s not just strong language — we don’t know how many migrant workers died building the World Cup venues in Qatar, but the Qataris have admitted to over 400. And there’s no escaping that the Gulf nations hold a different view of personal liberty than the West. On some levels, this is easy to address, and these envisioned cities will enjoy some additional liberties. Alcohol will be widely available, there won’t be dress codes, and there are signals of an increasing tolerance for people’s religious and sexual preferences that isn’t enjoyed elsewhere in most Gulf nations. We’ll see. The track record isn’t great.
The concerns become dystopian fast. Neom will be run by an operating system called Neos, and every resident will have a unique ID number, with 24/7 tracking. No need to carry keys, since Neos will know which doors you are supposed to be able to open. No need to carry money; Neos can put it on your tab. No need for Mohammed bin Salman’s security apparatus to hack your phone to listen in on all your conversations, either.
If You Build It, They Will Come
Will rich people want to live in a future built by the same people who murdered a journalist? The sober answer is yes. People care about human rights. However, most people, most of the time, care more about their prosperity even if it comes at the expense of others. Think Big Tech.
The early indications are that using money to attract money … works. The Gulf has become a premier destination for fundraising efforts. In just the past few weeks, venture firms including Andreessen Horowitz, Tiger Global, and IVP have held high-profile events in the Gulf. “The Four Seasons in Riyadh,” according to one prominent venture partner, “is basically Palo Alto.” An executive in the UAE’s investment company said, “We came to San Francisco looking for them in 2017. Now everyone is coming to us.”
Some are coming to stay. Ray Dalio is setting up a branch of his family office in Dubai, and big-name hedge funds, including Millennium, ExodusPoint, and BlueCrest, all have offices in the Gulf already. The UAE registered a net inflow of 4,000 millionaires in 2022, and in Dubai, $57 billion in real estate changed hands, up 80% from 2021, including 86,000 residential properties and 219 homes worth over $10 million.
There is merit to the suggestion that a decent strategy for success is to find the largest pile of money and stand as close to it as possible. The largest pile can now be seen from all continents, and millions will migrate. Does this represent a subjugation of Western values to money or the realization that capitalism’s self-interest is the premier force in a modern world? The answer is yes. Strategy is leveraging your strengths to do something that is really hard, ideally impossible for others. The Kingdom’s strengths are unprecedented capital and a willingness to play the long game. So, how does this impact you? Nothing draws human capital like capital. If you live in the West or South Asia, one of your kids may well end up in the Gulf. Is this good or bad? I don’t know. It just … is. We’re witnessing the mother of all pivots.
Life is so rich,
P. S. This week on the Prof G Pod I talk with Bill McKibbon about media shakeups and the state of climate change. Listen here.
P.P.S. I’m teaching Business Strategy and Brand Strategy back-to-back in May. If you haven’t signed up yet, you can check out lesson one for free.
heard the 36 olympics were great.how did that pivot end?
Scott, I appreciate you always trying to call balls and strikes. It feels like the pile of cash you reference is blurring your vision on this one. It’s hard to reconcile the admiration that comes through your piece with…. take your pick from the countless human rights atrocities. Feels even less authentic than hearing you pitch “moving forward” in a Toyota (can’t you make Ed read those?). I get that the piece is about the transformation in the region, but your silence or omission on human rights is a loud statement. It’s hard not to see this as an endorsement of the region. People caring about their own prosperity at the expense of others in America is one of the themes you rail against regularly. If it is a “strike” in America, why isn’t it a “strike” in other countries?
I think the devout will end up with the Sunni’s. The US preserves countries ethnics etc. The little banks are like little countries. JPM swallows up banks China and Russia swallow up countries just like capitalism. The 3 banks will look like totalitarianism.
Great article, but to use a FIFA report on “highest attendance ever” during the WC as a source of fact is like believing your kid when he says he didnt eat the last ice cream (even tough there are just the two of us in the houshold, and I sure didnt eat it).
Maybe they can claim a top 3 spot if you take “ticket sold” (i.e.ticket giveaways for a large portion of the tournament) into account, but that is still a big maybe.
Scott. The World Cup in Qatar did not cost $220B. This silly number has been repeated endlessly. Almost all if that $220B is for infrastructure (roads, rail, hospitals, schools, hotels, you name it) and … LNG processing facilities. Stadiums cost around a billion. It was a waster to build/renovate 8 stadiums.
Dear Scott
Some thoughts from having lived and worked for 6 years in the region:
1.) Re peak oil: At least for Saudi Arabia, the question may be more if DEMAND runs out than SUPPLY. If all green technologies come, Saudi may still have oil in the ground but nobody to take it, at least at the price desired to finance the government machine.
2.) Re the big construction projects: No doubt what has been built in the Middle East over the past 15-20 years is highly impressive and deserves respect. Though what exists today is maybe half of what has been announced historically. Abu Dhabi’s carbon-free Masdar city? Never came to fruition. Saudi Arabia’s tallest skyscraper Jeddah Tower: On hold. “The World’ in Dubai: Mostly some deserted heaps of sand. The previous Saudi Mega project Kind Abdullah Economic City – less than 10k inhabitants. Therefore, a bit of skepticism whether all these NEOM projects will really come to fruition is dearly warranted.
3.) Saudi power: Why did you not even mention the failed intervention of Saudi Arabia into the Yemen civil war?
Concluding – the Middle East region is highly interesting: impressive economic development and rapid social change are taking place. Great if you bring some attention to it. But please do not believe all great PR, have your team conduct research and employ differentiation and nuance that you so greatly bring to other topics.
I have been to Abu Dhabi a few times and it has a certain attraction but I still suspect that the oil driven economy will not transition easily to green energy. Quite apart from the cultural transition in a world where female empowerment is a major force.
The new Ozymandias ?
I’m incredibly skeptical regarding the green energy claims. Sure, they build it all green-powered (and conveniently ignore the massive externalized environmental costs, such as producing all that glass in furnaces powered by fossil fuels), but why would they? Where’s the sense in spending extra billions on doing it green, when you’re sitting on top of a pile of oil? People (most famously Matt Simmons, RIP, author of Twilight in in the Desert) have been forecasting peak Saudi oil for decades now, and it just isn’t happening any time soon. They will burn every last drop until they absolutely have no other choice. Any green claims are nullified by the simple fact that the entire financial model is based on rich folks getting to/from the gulf via fossil-fuel-sucking aviation. Green aviation at volume is a good 30 years away.
Here’s a more realistic scenario…
Over the next 30 years, gulf states will cease to export oil (not a problem for us as the west transitions to renewables), but they will still use oil for their own internal needs, and to build their shrines to capitalism in the desert. Then maybe in the late 2050s after China/India finally greenify their energy and stop importing oil, the gulf states will hastily assemble a green energy infrastructure, using all the money they made from burning down their oil reserves to the very last drop to entertain the 0.01%ers.
You can count this Irish pauper out of the musrat sandlot, right alongside Tiger Woods! Let the phat cats bake and baste in their cooking OIL; as for me and my house, I shall serve the Lord! He’s spent the last 2 millenia building me a mansion that would make the Rottenchilds blush!
Ah, the modern über-rich, they would be headed to becoming a subspecies quickly if they weren’t so tolerant of destroying our biosphere. It’s been a singular source of amusement to me that the impact of obscene wealth on psychology/neurology seems to be a dialectic of isolation/paranoia caused by needing to protect their wealth and impunity/fearlessness that they can be touched by mundane ground-floor survival issues. They can’t understand the lives of the ugly masses and they think they can protect themselves. BUT climate change will be the great equalizer. They can live in underground silos or Saudi playgrounds, but unless they wake up very soon they and theirs will not outrun the suffering guaranteed by climate change. And the change is happening more quickly than models have ever projected. Let them have their precious bubble of false-security. Live by the sword, die by the sword.
Hey Scott, thanks for the article. Re your travel plans; maybe take the family (sans canines, too hot for them) to Canyonlands or Capitol Reef sometime. Enjoy the “hospitality” of the American desert. Would be an epic pivot away from the artifice the Gulf States envision as the good life. Not for you, perhaps, but for your sons.
Scott – I always find myself learning from each post and more importantly energizing me to learn more and be informed about where the future will be and what I can do going forward. Thanks!
Excellent piece. Just back from 18 months of wrestling with the disparity between “vision + reality x culture @ KSA =…” with experiences profound and profoundly depleting. The cultures are vastly welcoming (I’ve told my Saudi colleagues they are “the Italians of Arabia”, the vision often unrealistically myopic. All that for a deeper conversation in a different forum.
One note, Professor Galloway; there is significant difference between “preference” and “orientation,” especially when discussing sexual identity. While one may choose a Preference, Orientation is inherent. Sexual preference may refer to certain acts between any consenting adults, sexual orientation is not a choice. This matters in any and all discussions regarding same. Thanks!
A good read. I thought Mohammed Bn Rashid Al-Maktoum was ‘crazy’ but MBS by all intent aims to dwarf his strides in the Gulf. Interesting times ahead
Great post! Neom is the dream …. and nightmare. I will be watching to see how this unfolds.
A gulf Arab myself (educated in the US, arriving shortly after 9/11) and really interesting to see the views on the region change. I can tell there is interest but trying to see how I can maneuver as a US educated local so that they don’t need to pay tax free 7 figure salaries to hire my bosses from abroad much longer
I can understand that Russian “buzznismen” and their ilk (Mexican) may feel comfortable in such a place, anyone else used to some modicum of rule of law would be well advised to do a search using “Ritz-Carlton tax collections” to find out the real cost of residing in the kingdom. Another search about advice if you get involved in a traffic accident with a local will open your eyes to what to expect and not be disappointed. To those considering going, best of luck!
I doubt that “the rich” will be able to unsee the spectacle of MBS putting several generations of extended family members belonging to the ruling elite under house arrest in the Ridyadh Ritz Carlton for over a year. In all of these countries, due process is whatever the ruling despot says it is. Your private Lear jet will do you no good when the airport is sealed off by local army troops. But, go ahead, get in bed. Just don’t fall asleep.
A race to the top in rough terrain always leaves many casualties! The real big lie,the greatest good.ps all paid for by adolescent asthma.Fucking humans worst species on the planet.Have at it boys!
Great article. One small comment. You mention that the Qatar World Cup had the highest attendance in history. That is incorrect. The highest attendance in World Cup history is still by far USA1994 with 3.57 million spectators. This record will be easily shattered by USA2026 and probably never surpassed again until the USA hosts a third World Cup. In second place is Brazil2014 with 3.44 million. Qatar does come in 3rd at 3.42.
A more impressive statistic of US might. The USA in 2026 will not reuse a single stadium from the 1994 World Cup. Only 22 years later, all new stadiums!
That’s a lie!
It is now 32 years later.
I just got recruited by Neom to assist on the launch of their ambitious hospitality projects. Neom is very interesting but I do have reservations for all that you lined out above. Sustainability has always been a triple bottom line and the humanity aspect of that trio, in this project, is what gives me pause. The commitment to achieve a better society was palpable when I produced an event for Neom on my own home turf of the Bay Area a year ago amongst a diverse group of entrepreneurs and professional class individuals in attendance. I’m curious to learn more.
I have been listening to most, if not all of your podcasts, watched you or Bill Maher and read no mercy/no Malice forever. This article punches through the fact that we need to be extremely vigilant when it comes to capitalism (I’m it’s truest sense) and the green(pick your color)washing that the wealthy people, governments, companies/nations are executing.
The most telling part of this for me is that you knew all this and took your family to the Qatar FIFA.
It will never work. It’s the biggest short I see for the distant future. Why would the rich be so stupid to invest their life and belongings in a dry desert when they can relocate on the Cote d’Azur, on Lake Como or in some luscios exotic destination. Do you remember what happened during the GFC when the money dried out? People simply fled and left their expensive sportscars still to be paid in full in open parking lots to be covered by dust. Well, that was only the prequel.
To paraphrase Bill Ayers, kill all the rich people. Break up their cars and indoor ski hills. Bring the revolution to the desert where the rich are at. When all the rich are living in a dome in the desert, not even $75B army will protect them from the angry masses in the US who have military-grade weapons. Putting them all in a glass dome will be the proverbial, fish in a barrel. A ground war in a high-tech desert bowl will bring all new meaning to the idea of a “Thunder Dome”. There will be blood.
Oh. And what about all the best hackers focused on one target? How many are working on those high-tech projects now? If one incel can penetrate the DOD, how will the Saudis be able to repel a group of them with AI weapons developed in the US and China?
fuck’s wrong with you?
Playing out the likely outcome of the march of massive income disparity. There’s already violence in the Middle East, mostly religious but also generated by income disparity.
“Those who cannot remember the past are condemned to repeat it.” – George Santayana, The Life of Reason, 1905. From the series Great Ideas of Western Man.
If you study history, the reconciliation of disparity is usually a massive calamity – often war.
https://www.theatlantic.com/business/archive/2017/02/scheidel-great-leveler-inequality-violence/517164/
This sounds 100% dystopian, speeding up the ecological destruction of Earth.
There’s no mention of that in the article but it’s likely they’re not suicidal in the Middle East.
Alan, I was referring to the bottom line for the rest of us.
The ‘rich’ built America. Railroads, canal system, airlines. Paid for libraries, Universities, music/play venues. Funded early National Park lands and infrastructure. But, the new woke/left and the old socialist/radical elements in the media and academia cannot stop the hate against them. Not defending the robber barons or the modern Private Equity types, just pointing out that they fund much of what the rest of us enjoy. But, primarily, they pay taxes. In California, HALF the state income tax is paid for by 0.4% of the people. If indeed the US and EU is driving the rich out of country, as California is driving them out of state, WHO pays for ‘it all’? You can debate the personal life or nitpick her belief system, but Ayn Rand called it. We are living in an Atlas Shrugged world now.
Of course, who can forget those stirring images of John Rockefeller with a wrench in hand, putting his might oil well together under the hot sun. Builders they were!
It takes capital, not only labor.
Yes, well as a gay person I don’t wish to be pushed off that tallest of buildings.
Agree with all, except oil will never run out! Oil use will run out sooner than anticipated, but plenty of oil will remain under ground.
Keep dreaming man. There’s no replacement for oil. Fuel is just a small part of its products. And it will finish, one day.
Great, great insights, as always, this week.
It would be interesting to also know, what can go wrong in the pivot? Scott do you think they’re already there? Some challenges I can see
– Climate/ weather
– Oil revs decreasing and requiring to start asking for tax
– Dynasty issues at the top (at some point, it happens, or so history tells us) forcing maybe the country to go democratic, which in turn starts the ‘social benefits for my voters’ vicious cycle
Sounds like a mousetrap for billionaires… The thought of having them all together in the desert is interesting. May as well draw a giant red bullseye target on top of that glass dome.
Interesting? You meant frightening 😬
Milkshake v Rosebud.
This isn’t a pivot. It’s a Hail Mary.
This is super interesting but despite having mother in the title you missed a really interesting narrative on the lack of female rights in the Middle East paired with the rising wealth of women in the west. What’s their plans to attract the ladies?!
I can only agree with the mindset described by Prof Galloway for the GUlf countries. I was approached a few years ago to manage an IT project that suffered all kinds of issues starting with delays and low level of productivity from hired IT staff (350 people).
I flew there to make an assessment of the situation and propose a turnaround roadmap, for a whole week. When realizing that more than 70% of staff had their passports under custody by the hiring firm, along with an average of 3 to 3 months wage still to be paid, 90hours of work/week, I declined and flew back home…
Fascinating. The current refuge for billionaires is the city-state of Singapore. How to scale up from already vast heights seems fraught with difficulty. Sports buys legitimacy but where from here?
One other thing the gulf states have is vast amounts of uninhabited space that receives direct sunlight almost every day. You’d think they’d consider dropping a cool trillion filling all that space with solar panels and batteries.
This is super interesting but despite having mother in the title you missed a really interesting narrative on the lack of female rights in the Middle East paired with the rising wealth of women in the west. What’s their plans to attract the ladies?!
Sadly I have to agree with your comment that that while most people claim to care about human rights, they care more about their own prosperity (and rights). This is true when you’re talking about the right to bear arms, ethical treatment of animals, etc. The fact so many people traveled to Quatar (including your family) to enjoy a football game, despite the many concerns over human rights just confirms this.
Holy shit! This was the exact dialogue I have been itching to read. I don’t religiously follow news or pretend to be as smart as many, but I feel like I’ve anecdotally been seeing/talking about these forces coming together and increase the prowess of the Gulf and it’s accelerated rise to global stage and acceptance (for wealthy Westerners) in the near future.
Ditto, Derek!