Category: Uncategorized

You’re Not Ready

Posted on by Steve Sammartino

A Marketing Director once told me, “You’re not ready yet, Steve. You need another 12 to 18 months in your current role.”

I took it in good faith. The conversation was regarding my filling a Marketing Manager role, a step up the corporate ladder from where I was. Then the next week, it was announced the person who was taking the job came from sales and had zero brand marketing experience. That was when I learned what the Marketing Director really meant.

“We don’t want to give it to you, Steve. We like this other bloke more…but we’ll tell you something digestible for now.”

Whenever anyone tells you that you aren’t ready yet, it can mean a lot of things – but it has nothing to do with being ready. Why’s that? Because no one is ever ready for anything.

Before anyone is given a chance to shine in a new role, there must be a leap of faith from someone, somewhere. Inside corporations, a great myth is perpetuated by managers that workers win their roles based on qualifications and experience alone. Mostly, managers give opportunities to the people they like, who went to the same school, follow the same football team, wear the right clothes. Someone not too different to them. It’s rarely about competence. If the game of corporate snakes and ladders were about competence, there’d be far fewer instances of CEOs pocketing $10 million to go away quietly because they did a terrible job. The corporate game is very different because what powers its success, the infrastructure, already exists. Most managers are simply riding it.

I haven’t been ready for any of the important milestones and projects I’ve done in my life. But I worked it out as I went along. Unless we are talking about something serious like flying a plane, engineering bridges or performing surgery, being ready is a corporate hoax. Ninety nine times out of a hundred, what needs to be learned can only happen once you are actually doing it. The mistakes we make literally becomes the readiness requirement.

When I built this with Raul, I had no idea what I was doing.

When I wrote my first book, The Great Fragmentation, I had never done that before.

When I wrote the first scripts for The Rebound and appeared on the TV screen, I wasn’t ready.

And now, I’m not ready to 3D print a house with Tom – but I’m doing it anyway.

I have never been ready for anything, and neither will you. So don’t believe them, and don’t wait for it. If someone tells you are not ready yet – it is time to leave.

—

Keep Thinking,

Steve.

Peak Facebook?

Posted on by Steve Sammartino

It’s been a bumpy start to the year for Mark Zuckerberg who lost a lazy $30b since ‘Meta’ tanked on the stock market .

I don’t think it is a stretch to say we are past “Peak Facebook”.

So far, the share price decline has been stubborn. Meta no longer has the most downloaded social media application (that crown goes to TikTok) and its abilities in laser-sharp micro-targeting have been curtailed by Apple’s recent privacy shifts. For the first time in its history, Facebook (Meta) has lost users. Since its peak market capitalisation of over $US1 trillion, Meta has lost almost 45 per cent of its market value and is now valued at $US561 billion. This is the biggest single drop in capitalisation of any stock in history – $US230 billion.

As the numbers are enormous, it’s easy to overlook how extraordinary this is. To give you some context – Meta’s loss since its peak is more than the value of BHP, the biggest company in Australia, at $US181 billion, or the combined value of NAB, ANZ, Westpac, Wesfarmers, Woolworths and Telstra.

It turns out investors can tolerate almost daily scandals including spread of misinformation, abuse of market power, threats to the democratic process, tacit support of anti-vax groups, facilitation of teen depression on Instagram and massive privacy incursions – but not an earnings miss.

That said, this has provided the market with an opportunity to recalibrate their viewpoint not only on Meta, but the wider Big Tech cohort.

It is becoming clear who the technology landlords are and who the tenants are. The smart play in this sector is analysing more than top line growth and turning your mind to structural shifts within the sector. It’s increasingly obvious that control is more important than reach and attention. From an investment perspective, structural shifts and access to customers are where we should focus our attention.

Amazon – Search and Advertising?

When we think of Amazon, we don’t think of advertising. However, for the first time ever in the earnings call, they separated out their advertising revenue. It came in at $US31 billion. This number is more than the combined advertising revenue for Twitter, Snapchat and Microsoft.

Let’s also not forget that the margins for this business would greatly exceed their traditional ecommerce business division. Running warehouses and shipping products is expensive – while putting ads on your site comes at near zero marginal cost. While the advertising earnings were only 7 per cent of Amazon’s revenue for 2021, it is deep in the purchasing funnel – right after consumers have searched what they want to buy, inside Amazon’s ecosystem. It’s hard to have a more powerful offer for brands wishing to sell something than being there at the moment of truth for the consumer. Amazon now has the advantage of owning a quasi-search for internet shopping, and they get to advertise on top of it.

On the other hand, Meta has a more indirect business model for advertising, rendered vulnerable by Apple’s new requirement that their users ‘opt in’ to tracking. This has an estimated cost of at least $US10 billion in revenue to Meta in 2022 alone. This move has impacted Meta’s ability to target consumers as accurately. It pushes them further out in the purchasing funnel.

That is just the start. We can expect Alphabet’s Android mobile operating system to move in a similar direction and get ahead of privacy regulation.

Rail Wars

The new battle in Big Tech isn’t about user base or engaging, addictive products – it’s about owning the rails of commerce. Google, Apple and Amazon are beginning to flex some muscle and leverage their structural advantage over Meta.

First, Apple gets to make the rules. Meta may have nearly 3 billion users, but Apple controls the devices 30 per cent of them use. Apple decides what information gets shared within their iOS ecosystem and its decisions can change the fortunes of apps overnight. Their brand positioning has always been one of privacy as a fundamental human right. It would be prudent to think that Apple’s structures within this realm will only strengthen and align with prevailing consumer and regulatory sentiment.

Both Amazon and Google are using search as a positive advertising mechanism. This is based on desire, rather than interruption. Facebook has historically relied on going deep into psychographics and behaviour profiling (now frustrated by privacy controls) and being compelled to worsen their platform experience because of their advertising business model.

In contrast, search-based advertising is based on direct and immediate consumer feedback, powered by consumer desire. The platforms Amazon and Google operate extremely close to the point of purchase. Amazon controls the audience inside their ‘store’, while Alphabet (Google’s parent) can respond to direct queries inside their maps, Android OS, searches and Chrome browser. Outside of Facebook marketplace and Instagram commerce, Meta is not proximate to the ‘moment of truth’. 

Meta faces two tough challenges. Despite the incredible reach of their platforms (2.9 billion users), Meta does not:

  1. Own the rails of commerce like other Big Tech firms do.
  2. Go deep into the purchasing funnel.

The most expensive shelf space in Coles and Woolworths is right next to the cash register, where we often see impulse purchase items. The cost of this real estate is justified because it’s where a purchase is about to take place – when we have our credit cards ready.

It’s also true that brands spend more on cooperative advertising directly with supermarkets (“trade spend”) than they do on brand messaging within consumer markets. If I type “treadmill” into Amazon or “new car finance” into Google, you can be sure I’m ready to buy. Being in a group about fitness on Facebook or following a retro Porsches page on Instagram could be more about hope than intent to purchase. In the supermarket of the internet, money will increasingly flow towards the point of purchase.

Facebook is where people congregate for socialising, news and entertainment – it’s not where they go to buy. While it is a great place to generate brand awareness and build associations, that’s going to be harder to achieve with privacy shifts and those who control the rails shutting them out. We are also entering a more competitive market for attention in social and entertainment realms.

The Metaverse Hallucination

Facebooks’ rebranding to Meta and subsequent investment in the metaverse is strategically the right path to take. Their investment in the metaverse – more than $US15 billion to date – could build out an ecosystem they own and control through their own device, the Oculus. It’s just unlikely to work as well as Mark Zuckerberg hopes. It already exists in a multitude of gaming contexts with well established players. Turns out having billions of dollars and yes people surrounding you can cause a person to lose touch with humanity.

The problem is that it’s already a hyper-competitive market, and Meta’s offering lacks the ‘reality’ that has been the core proposition of Facebook and social media generally. Social media is inextricably linked to what we do in the physical world. Despite the filters we add, it is a mirror for our lives and relies on real world connections. It builds connections and FOMO, while the metaverse forces people into wormholes.

Virtual reality (the metaverse, according to Meta) is the domain of games and fantasy. It’s hard to show off how great your life (and car, house, garden, holiday) is when it’s only pixels.

Even if Meta manages to pull off its metaverse miracle, virtual consumption will never rival actual consumption. For most people, their biggest expenses are food, transport, shelter and healthcare, which are unalterably physical.

Speaking of physical, success in the sector will compel Meta to get better at making hardware. The much-heralded Facebook Portal hasn’t exactly set the world on fire, with fewer than 0.02 per cent of their consumer base investing in one. In comparison, Oculus has fared a little better, with purchases by 2.4 per cent of Facebook users.

It may be that Meta has maximised what it can be – it has peaked. We an only hope.

Or maybe I’m wrong and Zuckerberg is such a brilliant strategist that he has deliberately stumbled to stave off threats of regulation and splitting up what is still the biggest audience any organisation has managed to garner in the history of Earth.

– – –

Keep Thinking,

Steve.

Touch Down – Super Bowl hits & misses

Posted on by Steve Sammartino

It’s very difficult for standup comedians to maintain their edge once they become super stars. It’s not that they stop being funny people, or lose their stage mojo, it’s that they often lose touch with their audience. It’s hard to relate to ‘the people’ once you drive a Ferrari and live in a mansion. Their stories and anecdotes become distant, even foreign. The same thing happens to successful companies and it’s happening to Meta.

This week the Super Bowl happened in the USA. The capstone event of not just American Football, but advertising. At US$7 million for 30 seconds – it’s quite an investment. Despite US centricity, it also serves as a barometer for technology and the global economy. You can see all the ads here.

As expected we saw adverts for snacks, beer and automobiles. The latter was all about our all electric car future. In the US, electric cars are 9% of sales, yet they are getting close to 100% of the attention. By my reckoning, we’ll all be driving electric long before government regulations make it mandatory. There was even an advertisement for an electric car charger! In Australia alone, this install market is a AUD$40 billion opportunity (20m cars @ $2000 per charger). And yes, every car will have its own charger.

Dropping the ball

Big budgets doesn’t always translate to great stories. Two of the tech titans, Meta and Amazon, had terrible advertisements. Their ads felt like public service announcements of why we need to be suspicious about them. I’ll start with Meta. If you haven’t seen their Super Bowl advertisement already, watch this, and I’ll see you in 60 seconds….

Here’s my outtake:

“When the real world really blows – just sub into the metaverse”.

Is that a subliminal message from the Zuck himself? Is he admitting his contribution to the decline of civilisation? It seems his most loyal lieutenants didn’t have the courage to tell him he’s lost touch.

Now onto Uncle Jeff’s empire, Amazon. Their ad, which can be seen here was unironically called Mind Reader. It features Scarlett Johansson and Colin Jost using their Alexa. This one is kinda real, and even a little funny, but mostly unsettling. While the device can’t quite mind read yet, the biggest fear most people have about always-on, always-listening devices like Alexa is that the system is gathering far more personal information than we want. Another great antidote to buying what they are actually selling.

If you ever wanted a clear idea, then Coinbase delivered. While they are not about to win any story telling or creative awards for this piece, it was very clever. Running a floating QR code for 30 seconds at a cost of US$7 million has to be the most single minded marketing proposition of all time…. and people took action. It had a whopping 20 million hits within 1 minute. A twenty percent success ratio – unheard of in advertising in the modern era.

The Touchdown!

For me the touch down went to Salesforce. Their ad took a shot across the bow of their technology brethren. While every other tech firm and billionaire seems to be trying escape from the messiness of earth to mars or the metaverse – Salesforce had this message. Brilliant.

One of the most promising brand plays today is to tell people how and why you don’t act like big tech. There’s a real movement against them, and it’s gathering pace. It’s going to be a long war before we get back our data, our humanity and long needed regulation – but in the interim, not doing many of the things they do, and telling people about it can be a bankable strategy.

– – – –

Keep thinking,

Steve.

Is Crypto Gambling or Investing?

Posted on by Steve Sammartino

Cryptocurrencies have created many multimillionaires – even some billionaires. While this might seem like an opportunity for emancipation, I can’t help but think that the opposite is true.

Before I commence my diatribe, let me be clear: Cryptocurrencies are incredible. The technology underpinning them (like blockchain and DLT) is brilliant and has many use cases. It is here to stay. I believe all sovereign countries will move to their own cryptocurrencies, like US-crypto or AU-crypto. Of course, a few ‘indy’ currencies will survive like Bitcoin and Ethereum. My bet is they’ll eventually trade as a kind of digital commodity, like precious metals, oil or grains are today. The other 10,000+ crypto currencies will become the penny stocks of tomorrow.

Now to what I really think as an economist about crypto ‘investing’.

Speculation Is Inevitable

When fortunes are made seemingly overnight, FOMO is inevitable. This in turn leads to risky speculation. I wish I made bigger bets on cryptocurrency when I discussed it in my first book in 2014 and blogged about it here in 2015. It has risen 100 fold since then. While I made some gains (I’ve lost some coins too), it was pure luck. I was experimenting with the technology, rather than investing. But like any burgeoning technology, it must go through a speculative boom and bust before it can settle into the economic infrastructure.

Remember the dot com boom between 1995-2000? Any IPO touting the word ‘.com’ had investors lining up. Share prices of companies with neither assets nor customers, but armed with a loose idea of how they were going to change the world, skyrocketed. In five short years, the Nasdaq rose 570% (chart below). The bust started on March 11th in 2000. It didn’t get back to those highs for 15 long years.

It’s usually during these ‘down years’ that we sift out what the market really needs, leaving behind the frenzy created by opportunistic hucksters taking advantage of the human instinct to gamble.

Where is Crypto at now?

Bitcoin has lost around 37% of its value since November, and at one point was half its peak price. Cryptocurrencies have lost a combined $1.4 trillion in value. As brokers like to say, there is ‘blood on the floor’.

But as any crypto acolyte will tell you, this has happened before. Big drops are not uncommon. Their advice would be to buy on the dip. Not because there is any underlying economic reason. just because they saw a pattern last time. But as any sophisticated investor will tell you, it doesn’t mean that pattern will emerge next time.

No one really knows if the price will go to a million per Bitcoin, or just one dollar. Every day, we see crazy gains from at least one cryptocurrency. Today it was Fighter Shiba, which rose 858% in a single day. Tomorrow it will be a different cryptocurrency. When it comes to the future of crypto prices, people are just guessing. Guessing is not investing.

Scarcity is Not Enough

Sure, there will only ever be 21 million Bitcoins, but Fighter Shiba and every other crypto is scarce too. Scarcity is not a valid argument for investing. On its own, it doesn’t create value. Things of value need utility or yield. When you buy a stock of Apple, Alphabet or Amazon, their prices may well be depressed for a period, but it doesn’t stop people buying iPhones, searching or ordering online. These compnaies are not just financial constructs, they bear fruit. Likewise, It doesn’t matter what the currency of the day is, or becomes – they’ll trade in it.

If cryptocurrencies want to be a store of value or economic utility – then they can’t rise in perpetuity, they must stabilise at some point. If they don’t, they become a Ponzi scheme.

Currencies are Natural Monopolies

There are many cryptos aiming to be the currency of an industry sector – like energy, social media, data storage or logistics. But It doesn’t make sense to have lots of currencies. Currencies are what we call a natural monopoly. People need a single reference point to transact in, otherwise it’s just too complex.

We get paid in dollars – and we need know what something costs us, when we buy it, in the currency we earn. Just think of how confusing juggling multiple currencies is when you travel overseas. Believing we’ll end up with multiple cryptos is pure folly, because it doesn’t take into account human behaviour. Hundreds of years ago, regional banks around the world had their own currencies, as did small villages. But it became too complex once we started travelling and trading on a grander scale, so we reverted to precious metals and eventually fiat currencies. History matters.

The Youth Target

If you’re under the age of 30 as many of my readers are, I can see how crypto’s massive gains are attractive. It’s a chance to get in the game, to stick it to the man. We often hear how boomers stole the future and priced you out of the housing market. It’s understandable. But cryptos growth is unsustainable. The average per annum growth of both shares and property over hundreds of years is around 10%. Anything above that long term average is the anomaly, so we ought be wary.

Every Saturday the Australian Financial Review runs a full page advertisement from the currency exchange Crypto.com which says “Fortune Favours the Brave”. If you think it sounds more like gambling than thoughtful capital allocation, trust your instincts. The one thing we need to remember about exchanges and brokers of all sorts is that they make money when people are trading. It matters not to them whether prices are going up or down.

We can add to this gambling ethic the recent example of crypto exchanges sponsoring football teams around the world. AFL, NRL, Premier league, NFL – cryptos are the latest way to have a wager. Those encouraging it are well aware of where crypto fits in many young adults minds. So they went to where the gamblers are.

So, is it gambling or Investing?

My view is pretty clear. And the lesson is simple – unless you understand where you are putting your money and why, you are gambling.

There are many people who became wealthy through gambling. Maybe you want to take that risk, but unless you’re happy to lose what you play with, I wouldn’t go there.

Capital allocated to high risk assets should never exceed 5% of a balanced investment portfolio. Remember, for every single investment you lose your money on, you need 10 successful investments (10% ROI) to just get back to where you started. A sobering thought.

– – –

Keep Thinking,

Steve.

Everyone will own NFTs

Posted on by Steve Sammartino

Art is just the start. By the end of this decade everyone reading this blog will own a large number of NFT’s. But they won’t be digital art, they’ll be part of a new combined commerce market where digital and physical properties permanently overlap and interact. But from now on it will serve you well to read the words ‘Smart Contract’ whenever you see the acronym NFT. Buckle in – we are about to get the missing link to the Internet we were promised in the mid 1990’s.

When it comes to market growth, NFTs are the clear winner of 2021. This year sales topped $A12.7 billion which represents a 2,500 per cent jump on 2020. These have largely been made via the Ethereum crypto currency and blockchain which, if anything, points to the importance of this crypto because it is “Turing Complete”. This means that the currency is actually programmable, like a computer. Bitcoin can’t do this. Ethereum will be the crypto which becomes the fabric that holds together the smart contract economy.

In 2021, Ethereum had a 700% increase from $US591 exactly one year ago, compared to Bitcoin which rose by, a still heady 266%. While the value of NFTs is crazy big, I can’t help but think that NFT sales wouldn’t be nearly as high if people were buying in fiat currency. Buying them in Crypto (Ether), must feel a little bit like spending ‘found money’ – especially if you’ve held the crypto for some time.

But let’s not let the NFT bubble (and it is a bubble), detract from the long game. The functional use cases for NFT’s which will emerge and change everything. I’ve listed below some use cases which are quite mainstream – to stimulate the mind on where this can, and will go. What we need to remember about NFT’s is that “Non-fungible” more or less means that it’s unique and can’t be replaced with something else. It serves a unique purpose and will in the future be programmed to automate in market transactions related to the NFT.

Property Rights: Your house title will be an NFT. It will state who owns (owned) the property, mortgage details, rates and other legal details. All people involved in a property: the owner, the financier and the Government will have access to data related to the property via private keys. This will reduce administration and costs and keep the details secure. Contracts for this property will automate payments between parties. Similarly, rental agreements will become NFT’s and data related to the rental including property conditions will be baked into the blockchain to avoid disputes.

Digital Identity: NFT’s will be used as a means for issuing important documents. Things like passports, driver’s licenses, IDs, health records, education credentials and the like, could all be tokenized and get their digital representation in the form of NFTs. Doing so would allow the authorities to check the validity of the document by seeing whether or not it is connected to an official NFT. With this, forged passports and IDs would be practically extinct, which would likely lead to a major disruption of all kinds of criminal activities around the world.

Events: Many consumer goods we purchase in the future will have NFT’s attached to them which give us access to events. Buying the latest album from your favourite performer may include an NFT which automatically gives you concert tickets in the front row., or even a back stage pass. All sold for a premium to super fans, or early adopters, or even speculators! Buying a this years premier league jersey of your club might entitle you to a seasons ticket to each game. Or a haute coutere dress could get you into an exclusive fashion show. It could even get more interesting than that – imagine an NFT becoming shares in a concert where the NFT owners underwrite the cost for Drake’s next world tour and those who buy the NFT’s share in the profit. All of this is possible.

Loyalty: The simple and classic example is frequent flyer miles. In many ways this system already operates much like NFT’s can. But, in the future there will be a market where we can trade our loyalty. I currently have more than 1 million frequent flyer points (sad I know) – I can’t use them all – in an NFT market place I might be able to sell 100,000 points to someone who wants to fly business class to London and receive $5000 for it. The buyer might get the flight and half the price and I’ve made some cash. It will be game changing technology for brands and loyalty.

Subscriptions: In this realm subscriptions can go well beyond streaming services and online news. Imagine a subscription coming with your next new car. Not only do you get the car – but you get access to certain ride sharing services simply by using your NFT. A car won’t just be a car – it will be a mobility service.

It’s Tricky: NFT’s will really shake up how intellectual property and contract law works the world over. The Hollywood studio Miramax recently filed a lawsuit accusing the director Quentin Tarantino for copyright infringement for his plans to sell NFT’s based on the screenplay for his 1994 movie “Pulp Fiction.” Tarantino’s NFT’s include a collection of seven uncut “Pulp Fiction” scenes as secret NFT’s, meaning their content would be hidden except to the owner. The content includes the first handwritten scripts of “Pulp Fiction” and commentary from Mr. Tarantino “revealing secrets about the film and its creator,” according to the release. Miramax contended it had certain “broad rights” to “Pulp Fiction” because the director had “granted and assigned nearly all of his rights” to Miramax in 1993. It will be interesting to see how this and cases like it, get resolved.

The Future: The reality is that buying anything physical can should come with a digital token (NFT). Even if it is unknown how the token might be used in the future, smart companies should start adding them their product portfolio now. The functionality can be added later. Likewise, anyone selling digital or virtual goods should be adding NFT’s, which at some point could get something physical added to it.

My advice is simple, pay attention to this space. Experiment and be the seller. Most of what is being bought today will be worthless tomorrow, but those who seize the real smart contract opportunity could invent something which changes industires.

– – –

Keep Thinking,

Steve.

Technology as a Religion

Posted on by Steve Sammartino

Price is determined by how much a purchaser is prepared to pay. Value is what we receive after the price has been paid. Of course, depending on the price, it can either be great or poor value.

Tesla make terrific cars. It’s true that they started the inevitable shift to our electric car future. However, Tesla Inc. is not worth more than the entire auto industry combined. Yet ‘investors’ are currently paying more than the aggregate value of the next 12 biggest car companies to own a piece of Tesla. As I write this, Tesla has a market capitalisation of US$1.230 trillion. The second biggest car company in the world as defined by market value is Toyota. Toyota is currently valued at only $US254 billion, or 20% of the price of Tesla. For context, Toyota will make 11 million cars this year, while Tesla might manufacture 800,000, if they are lucky. Toyota is valued at $23,000 per car sold, while Tesla is currently valued at $1.5 million per car sold. All other car companies have a much lower market capitalisation per car sold (average is around US$10,000 per car). In order for Tesla to collect the same price per car sold as Toyota, Tesla would need to sell 55 million cars a year. While Tesla is positioned and priced as a technology firm, it will never get around the reality that they have to bend metal like other OEMs. Of course there are another dozen reasons the price of Tesla stock seems irrational, but you get the picture.

So the big question, is why is Tesla worth so much?

Is it because Tesla:

  • Has uncovered a more efficient method of car production? Nope.
  • Is the only firm that knows how to make electric cars? Nope.
  • Is the only car company with autonomous driving technology? Nope.
  • Has unique battery and solar capabilities? Nope.
  • Is the only premium electric car brand? Nope.
  • Has unique software powering the car? Nope.
  • Has an unassailable lead in emerging car technology? Nope.

It is because stories are more profitable than reality.

Of course the products are real, and the company has real value – but the price reflects something different. Elon Musk has attained the status of ‘Nerd Jesus’, preaching his visions of the future to his growing flock of loyal acolytes.

In many ways, technology has become a new religion. It would appear that tech giants are the only ones who can lead us in these uncertain times. There is a such a sense of mystery to what they build and how they beguile so many of the world’s population. They hold the secrets to algorithms that steer our lives. They are the inventors of all the technology we use, yet don’t understand. It has been foretold that Elon Musk will lead us to a post-fossil fuel sustainable utopia. While Big Tech CEOs are not actually leaders of religious institutions, they certainly embrace Messianic tics. Their product launches are delivered to rapturous audiences, ready to sing the praises of the anointed one. Their mantras often set lofty goals for humanity, rather than brand propositions:

  • Facebook – A more open and connected society (Zuckerberg)
  • Twitter – Change the world 140 characters at a time (Dorsey)
  • Google – Organise the world’s information (Brin and Page)
  • Apple – Think Different (Jobs)

None are better than Musk, who proclaims on Twitter to his adoring 57 million followers that we need to become a multi-planetary species to survive. Investors are buying the story of Musk, our real life Iron Man. It’s my firm belief that much of the Tesla share price can be attributed to his persona and aura than economics. Likewise, a Hermes Birkin bag can sell for as much as US$500,000, because it is not just the leather and craftsmanship on offer.

So potent is the veneration surrounding Musk, any slightly negative posts about him or Tesla on social media will earn you the wrath of his congregation, descending upon you in outrage at an alternate view.

Will Tesla stock crash? It might. Or it could just as easily reach US$2 trillion dollars. Markets can stay irrational far longer than most investors can stay solvent.

To keep your head, here are two things to remember:

  1. Never forget that stories have real economic value. Don’t forget to tell yours.
  2. Keep your investments anchored in reality, because we never know when sentiment might just change.

– – –

Keep Thinking,

Steve.

Zero Person Corporations & DAO’s

Posted on by Steve Sammartino

Within a decade we’ll see multi-billion dollar corporations with exactly zero employees. They’ll won’t have a CEO, a board, and some might not even have shareholders. Companies will become ‘protocols’ – organisms which organise the factors of production to serve the people who work in and around them. Welcome to the dawn of the DAO.

If you’re not familiar with DAOs – it’s an acronym that will become commonplace. It stands for Distributed Autonomous Organisation. A DAO is essentially an organisation created by developers which can automate decisions, and uses smart contracts to facilitate ‘all that happens’ in the organisation via cryptocurrency and blockchain capabilities, without the need for management.

They allow for a kind of digital collaborative commons without any central authority – the authority is instead given to ‘the code’. The idea is that a well-designed DAO could eliminate human frailty or manipulation of a corporation for managements’ benefit. The authority to make decisions is instead via automated systems, crowdsourced decision-making, both of which are guided by a constitution developed at the digital genesis of the organisation.

This doesn’t mean that every organisation or corporate structure would necessarily follow this move, or investors would seek out public companies under a DAO structure. However, it will create a big shift in the short to medium term of how many crowd-powered or user centric internet services currently operate.

Last week a report was released by the bipartisan Senate Committee on Australia as a centre for finance and technology. The plan is an ambitious one that laid out 12 key recommendations, one of which included establishing a new Decentralised Autonomous Organisation structure (DAO) to be recognised by the Corporations Act.

Gigs and Big Tech

Often coined as Web 3.0, DAO’s could launch a brave new world that reverts to the original promise of the internet: a technology powered by people and not a handful of giant technology companies.

Let’s take the gig economy and Uber as an example. Uber is actually a very simple technology protocol. It links demand and supply with trips to providers, ratings systems and payment gateways. The only complexity associated with their business is scale – much of which was facilitated by pre-emptive monopoly generating venture investment for rapid growth. As a result, much of the largesse generated by the firm goes to the organisation and its shareholders.

Of their $US12 billion in revenue, 27.5 per cent goes back to Uber – a total of $US3.3 billion. If this company were run as a DAO, most of the $US3.3 billion could remain with the drivers. This entire company could be replaced by a DAO run by and for the drivers themselves. Protocols could be set up to replace the need for a technology landlord like Uber. A certain amount of revenue would go towards maintaining the system itself with a pool of developers, and a business and marketing team. It could even allow for an employment structure, with employee benefits like sick leave and superannuation under certain conditions as defined by the DAO. The best part for the drivers is that they could keep 99 per cent of the revenue for each trip they take.

If a DAO were set up for Uber and any gig economy-based business, it is very difficult to see a for-profit competitor being able to win, because those working the system have a very strong incentive to support a DAO. This might be a way to ensure the internet starts to become more distributed and provide a turning point to the eroding middle class – something modern civilisations are built on.

Now take this idea and think about how we could create a DAO-based social network – that is built for and by the users, or peer-to-peer trading ecommerce platform funded by a taking a small percentage of each sale, and maybe even a search engine. It’s little surprise we don’t hear much about the benefits of DeFi or web 3.0 discussed by big tech — it doesn’t suit their business model. 

Just like last time, and the time before that, technology always emerges which works to displace existing power structures.

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Keep Thinking,

Steve.