Themes that will dominate 2023 & beyond
Hi, Manish here. First of all a very happy new year to you and your family. I wish 2023 brings pleasant surprises, memorable experiences and best of health to you and family!
I am going to make some changes to this newsletter in 2023 and I’ve deliberately kept that for the last section.
Let’s get going here.
Imagine, if you run an AI algorithm for all content published in last week of 2022 and look for the maximum keywords. Three keywords will emerge - “Trends, Winners & Losers”. Okay, lets also add “memes”
You will see a lot of quality analysis, through past reviews and a window to the future. It is impressive, how almost everyone gets into a reflective mood and come to surprisingly rational conclusions - only when we let it play backwards :)
I listened to a great quote from a standup comic that pretty much summarized 2022 for me and forms the basis for my analysis.
“I wanted to be a boxer, until I fought a guy who really wanted to be a boxer”
Clearly, 2023 will trigger a reset of expectations towards almost everything hard-core and backed by strong business fundamentals. Anything which hovers around the hype cycles will not stand on its own leg. Any business or idea needs to fight, only harder this time. The fight will be relentless, long drawn, and test both - Skill and Survival instincts
Many of us got addicted to free alcohol sponsored by the FED - But the party is over.
So, we have started 2023 with hopefully a “No fog Zone”. I am outlining five themes that I believe will be relevant for the next few years. Remember, I have deliberately used the word “themes” and not “trends”, because trends can be transitory with a start and stop but themes evolve organically and stay relevant for a longer time. I am particular and selective here - I may have ignored themes related to workplace and layoffs.
Shift towards productivity
We are moving from a “Growth at all costs” phase to “Efficient Growth” phase. Companies which use to buy revenue by sponsoring free users and spending excessively on sales and marketing, should be doing an introspection. All business decisions “old” and “new” will be driven by return on investment.
Private equity will be the key buyer of assets during this phase as many companies will be available at steep discount in valuations. And guess what, will be the key agenda in all board meetings.
You can see how labor productivity has surged post 2008 recession from the graph below.
There are three areas to drive productivity.
Operational efficiency: The trade off equation has shifted from a softer, equitable and balanced working condition to what favors the wheels of commerce - “Hardcore”. A massive push to drive output by sheer force will be widely accepted. Recent announcement at Twitter or Snapchat are case in point. I am not sure what will happen to the 4 days’ workweek discussion. There will be massive push to return to office as employers get the better end in this bargain. We are seeing a return of the “hustle culture”
Investment in technology: Productivity software focused on RoI based business cases will gain wider adoption. Anything that can reduce the manual intervention at a justifiable cost will gain momentum. Companies that have invested in business automation tool to reduce costs or increase speed will have better edge.
Radical shifts in workflows: This will be driven by a combination of “supply chains moving onshore” to a complete “rethink” of business models.
No more winter for AI
All those who have been watching the AI space closely would know how AI hype cycles have gone through couple of winters since the 1970’s. AI has been challenged by lack of poor infrastructure, compute capacity, storage capacity and digitization of business use case. Most of these problems appear solvable now.
Chat GPT-3 & Dalle-2 has already captured imaginations. In fact, 2022 is one year when AI has demonstrated, how closely can it live up to its hype.
Many new businesses will emerge with “Model as a service” proposition. Niche data providers can leverage the AI models from Open AI and train for business specific scenarios. Imagine if someone carries volumes of data from genetic databases and health records of patients. These providers are sitting on oil which can be extracted by the AI models such as Chat GPT-3 and processed for business use.
Why take the trouble, let’s ask Chat GPT-3
Content, engagement & experience will be the edge.
In a world, where knowledge is getting commoditized, the key differentiator for any business will be how do they engage with their consumers. Businesses that are adding to the IQ of consumers around their category will build much stronger equity. Their distribution of this knowledge via social platforms or the creator economy will be another such differentiator.
The overall experience of buying the product/ service from the business will be continuum and a key determinant to their success. One company that combines all of these beautifully is TikTok.
“TikTok’s uses unique combination of user interactions, video information and device/account settings to offer - which personalizes the videos based on the interactions with content. That tailoring is coupled with a sense that real people on the app are synthesizing and delivering information, rather than faceless websites.
The trends that support this themes are many - Digital experience centers with augmented reality, Interactive websites, CTV’s and how can we forget Metaverse - the sum total of many such technologies.
Asset utilization will radically shift and support new business models
Software is progressing towards consumption-based economy - Much like the Utility companies. More and more companies are looking for consumption based or utilization-based services to reduce their burden on unproductive assets. This has created three large cloud utility companies - AWS, Azure and GCP and on similar lines some data ops giants too.
Fundamentally, the business model offered to clients will shift from “a seat for the movie” to “youtube shorts/ Tiktok” for the most relevant part. I am not going into the pros and cons of such a shift, but the tailwinds support the migration.
This will lead to economies of scale at the back end, to heavy customizations at the front end. This will need much significant investment in R&D, continued delivery and messaging on value prop. The downstream effects on unit economics are many - Price discovery, revenue realization, margin pressures etc.
Winners Accelerate in the turns
These markets provide an asymmetric opportunity - to beat the competition and grab market share - Innovative offerings, unique pricing & delivery model, exploiting gaps in the distribution engine, building equity with clients etc.
Companies that can play the productivity game coupled with strategic investments will widen their economic moat with competition.
The corollary is true as well, failing to “defend the short term” and “strategically plan for the long term” will shift economic value from market leaders to challengers.
This is also a phase where a lot of new startups will emerge with disruptive business ideas that can transform the landscape.
Note to readers:
In 2023, I will publish more frequently along with a mix short-form content. I’ve realized the propensity to consume byte sized content is huge and you will see a healthy mix here.
I am also sharing my visual templates on Miro, some of them I am using to test my own hypothesis as I am developing my startup
I will be sharing the weekly updates from my LinkedIn posts & Tweets here to share knowledge cross platform
Given the responses I’ve seen from all of you, I am excited to write more, share knowledge and more importantly seek your feedback. Please do write.
Happy new year once again.