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A Framework for Thinking About the Future
Fred Wilson is AVC. He’s also Managing Partner of Union Square Ventures (USV), and is an early investor in Twitter, Tumblr, Foursquare, Zynga, and recently joined the board at Coinbase - the leading Bitcoin wallet.
Fred was asked to speak at this year’s LeWeb conference about the types of technologies we are going to see in the next 10 years. He decided instead to talk about his framework for thinking about the future - which centers around the most important macro trends.
Fred talks about the 3 big megatrends:
These megatrends are changing the way we interact with each other and within our society. They're also having an effect on how markets form, and the way businesses are structured. Fred highlights a couple of interesting examples for each megatrend, and also mentioned 4 interesting areas to watch: (1) bitcoin, (2) wellness, (3) data leakage, and (4) trust/identity.
"We don't think about technologies, we think about trends, we think about what's happening in society, what's happening with people, in terms of how people behave." "The technologies are important; but we don't like to invest in mobile, or big data, or machine learning. We think about those types of things, they matter to us, but we really think about things from a behavioral and a societal point of view."
Megatrend 1: Transition from Bureaucratic Hierarchies to Technology Driven Networks
We see bureaucratic hierarchies in government, in business, it's how the world has been organized for hundreds of years. In the Information Age, it’s not a particularly efficient way of doing things. We are now in the post-industrial world; where technology driven networks are replacing bureaucratic hierarchies.
Example 1: Twitter replacing the newspaper
- “A newspaper has an army of reporters, reporting to a team of editors, who report to a publisher. They collect stories, the editors direct what stories are going to get reported, they get edited and eventually published. Then the paper needs to be printed and delivered.”
- Very slow and bureaucratic approach to delivering the news - yet this was the dominant way news was produced for a long time
- “With Twitter, all the sudden all of us are the reporters, the crowd is determining what news is most Important; by follower count, retweets, things like that - which gets surfaced to the top and we get our news instantly, in a newsfeed, on our phone."
Example 2: YouTube democratizing the studio model
- Video used to be produced in a very hierarchical structure with lots of decision making at level (very difficult to produce video content outside of that system
- With YouTube, all of us are video creators, we publish the video, the crowd determines what's important, and quality rises to the top
Example 3: SoundCloud bypassing the record labels
- Fred met the founders of SoundCloud at LeWeb 5 years ago, and USV invested in 2011
- "In the SoundCloud model, everybody creates audio, everybody creates music, they post it to SoundCloud, you don't have to get signed by a record label, you just put your content up (which Lorde did a year ago), you get found by the crowd, and you become the most popular act in the world outside the traditional hierarchical system of radio and the music industry.”
It started with Media & Entertainment... But now we're now seeing technology driven networks replacing all kinds of industries.
- Hotel Industry : Airbnb and Onefinestay (European
- Creative Industries: Kickstarter and VHX are replacing the traditional Hollywood studio system (USV portfolio companies)
- Learning : Codecademy and Duolingo (USV portfolio companies) both use a similar network model, where everybody teaches everybody, delivered on a phone/browser
Megatrend 2: The Unbundling of Everything
In the traditional world it was very expensive to package and deliver things to market, so products were bundled together... Technology is changing that. Everything is getting unbundled, and people are delivering more focused best of breed services. You can get everything a la carte (iTunes songs, Tesla, Amazon drones) The unbundling has more to do with how services are packaged up and taken to market, than with the way organizations are structured.
You used to buy one newspaper and get: world news, local news, sports, business, fine arts, classified ads - all in one package, you pay one price. Now with mobile and the internet, you get all of those services from different people, and they are better, because the people producing them are focusing on their area of expertise.
Example 1: Banking
Think of how expensive it is for a bank to open a new branch. Which is why everything is offered in one place: consumer loan, mortgage loan, credit card, small business loan, big business loan, working capital finance, etc. Entrepreneurs are taking these very profitable lending franchises away from the banks and delivering them in a technology driven model. This is happening very rapidly through the power of networks.
- Lending Club - the leading peer-to-peer lending network for consumer finance
- Funding Circle - the leading small business lending peer-to-peer platform
- C2FO - a global collaborative exchange for working capital
- Ox Money - a peer-to-peer lending company for the German market
Example 2: Education
The classic university model has been around for 600-700 years, but we no longer need to be confined by the walls of a classroom - with a professor up front. We don't need to build a library and fill it with books (we have eReaders now). The current university model is very expensive.
Even the research aspect is getting unbundled. USV has an investment in a company called Science Exchange, which uses a marketplace model to allow researchers all over the world to collaborate together on an open public network.
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Example 3: Entertainment
If ever there was an industry that mastered the art of bundling premier content with everything else you could never care to imagine, charge top dollar for a monthly subscription, and still squeeze in multiple 5-minute commercial breaks to a half hour segment - it’s the entertainment industry.
With Netflix, YouTube, Hulu, VHX, and others, we can combine the entertainment products we want a la carte, and access it anytime, anywhere. Through AirPlay and Chromecast we can connect it to the big screen and control just how we want to receive it.
Megatrend 3: We’re All Connected, All the Time
Fred started things off by asking the audience a simple question:
“If you were forced to choose between your laptop/desktop computer and your smartphone, and you can only have one, which one would you choose?”
A quick poll, with a clear verdict. The smartphone. About 80% of the audience would choose their phone over their laptop or desktop computer.
"I raised my hand for the smartphone. If I had to choose it would be a no brainer for me, because I can do almost everything that I can do on my phone.”(short of writing code or writing a book - that would be very difficult)
“There are things that I can do on a phone, that I just cannot do on a desktop because of the sensors that are in the phone, the fact that it's location aware, and most importantly - because it's on me all the time.”
“In many parts of the world - particularly the developing world - this choice has already been made. They’ve leapfrogged the desktop/laptop world because they could never afford that world. And they can afford the cheap $99 or $49 unsubsidized Android smartphone. The world is adopting them at a very very rapid rate.”
“The reason the mobile smartphone trend is important is because we are all now nodes on a network, we are connected to each other all the time. Not just part of the time, but all the time, and that's really really important.”
Example 1: Ridesharing
- Uber, Lyft, and Hailo (USV portfolio company)
- Because we are a node on the network, and somebody driving a car is also a node on the network, we can instantly connect and be taken where we want to go
- Although this may seem like a small change; it is profoundly impacting the world of transportation - not just the taxi and limousine businesses (impacting rental cars, delivery, logistics, etc.)
- A really simple move, that in hindsight was kind of obvious, is changing the world we live in very rapidly
Example 2: Payments
- Square, Dwolla, Venmo, and other services that allow you to effectively have a wallet on your phone
- Venmo and Dwolla in particular are peer-to-peer, so you can send money to anyone who has the app on their phone (Square recently introduced Square Cash, allowing you to send money to anyone with a debit card)
- "It's peer-to-peer, it's a network, and it’s changing the world of payments dramatically."
Example 3: Dating
- Tinder (and a host of other location based dating/messaging apps)
- "I haven't dated in 30 years so I don’t use Tinder, but everybody who is young in my life tells me it's a great way to meet people. It leverages location, it leverages photos - all the things that phones do so well, and it's a network. Everybody is connected to everybody on the network."
The 3 big megatrends: (1) networks, not hierarchies (2) everything unbundled, and (3) always being connected; make up USV's framework for looking at the future and for evaluating investments opportunities. Within this framework, here are 4 sectors that Fred finds particularly interesting:
(1) Money: Bitcoin as a Protocol
A lot will happen in the world of money because of Bitcoin. Not for it’s use cases as a currency, or to profit from volatile price fluctuations, and not for it’s attractive commodity-like characteristics (finite, limited built in inflation). The reason Bitcoin will have a profound effect is because at it’s core; Bitcoin is a protocol.
Bitcoin is the financial and transactional protocol for the internet.
- "We have not had a layer of internet infrastructure that was global, that was distributed, that was not owned and operated and controlled by anybody.”
- "What's most interesting about the Bitcoin protocol is that there is a ledger (called a block chain) which is global and peer-to-peer, it exists on every Bitcoin wallet that's out there, so every Bitcoin transaction clears publicly, in the block chain."
- This is a technology based architecture that looks like TCP/IP, HTTP, SNTP, that entrepreneurs can and will build a tremendous amount of technology and services over the next 5 or 10 years, and we will now see money flow on the internet in the same way that content, images, and everything else that we have come to know happens on the internet
(2) Health & Wellness
Healthcare is a complicated industry in every part of the world - government is involved, heavily regulated, expensive, and the situation is probably getting worse. Health and wellness is the opposite side of Healthcare. It’s what keeps you out of the Healthcare system in the first place - and it’s also right at the intersection of the 3 megatrends.
- Some devices are already out there (RunKeeper, Nike Fuelband)
- People are starting to wear devices that can report their vital signs to themselves and to others (doctors)
- “We’re going to see much more of this coming very quickly. We will see genetics, we will see the biology of our own bodies become available on devices that we will wear; in many cases even on our phone.”
By monitoring our health and wellness with these devices, we’ll be able to live for much longer
(3) Data Leakage
Ever since the Industrial Revolution we’ve been polluting the environment - it’s only recently that we're doing something about it.
- “In the Information Revolution the pollution is data; it's the data exhaust, it's the data that leaks out, it's the data that's letting our government spy on us. It's the data that's letting Google and Facebook and other services spy on us when we don't want them to.”
- "In many cases I am happy to have my government and Google and Facebook and others spy on me, but there are times when I would prefer that not to have happened, and we don't have control over that."
- Very important to start getting control over our data leakage - both at the individual, and societal level
(4) Trust & Identity
The tech industry has allowed Google, Facebook, and to some extent Twitter and Amazon, to be our identity service. We login to places all over the web using those services to authenticate ourselves. Although it may be convenient... What we’re essentially doing is giving those companies access to everything we do.
"There will be, I predict, a Bitcoin like service, a protocol, that's distributed and global, not controlled by anybody, that's architected like the internet, that will emerge and allow us to do the same thing in a manner that we control and it gives us control over our identity, trust, and data."