Cornell Business Review Fall 2021

Cornell Business Review Fall 2021

Evergrande for Foreign Investors Limiting Contagion Worries

LETTER

FROM THE

EDITOR

As a student publication, it would be unwise to seek to compete with news giants such as the Wall Street Journal and well-established magazines like the Harvard Business Review. A shoestring budget impedes access to economic data, while academic and professional responsibilities place pressure on our publication’s timeline. The simplest solution would be to synthesize the work of others—rewrap conventional ideas with different words and visuals. Instead, the Cornell Business Review pushes all of its staff writers to publish unique content by leveraging their personal passions.

Although all past editions benefited from this system, CBR’s 23rd edition is exemplary of what genuine and passion-driven content can achieve.

While this edition is more global and technical than previous editions, it also provides local insights. Tushar Chaturvedi’s analysis of Air India investigates the rapidly growing yet historically nationalized Indian aviation industry, while Strauss Cooperstein delves into economic contagion concerns resulting from Evergrande’s potential collapse. Davis Donley, following up on last edition’s article about the Electric Vehicle bubble, argues for investment in energy storage due to its integral role in the American energy grid’s transition to renewables. On the local front, Maria Alexander offers insights from Angry Mom Records’ owner George Johann on what makes vinyls special and concerns about the future of the vinyl industry.

Outside of our written content, the Business team conducted an interview with Aaron Buchwald, who is on the Platform team at AVA Labs and the lead developer on the C-Chain. AVA Labs is the developer of Avalanche, a smart contracts platform for decentralized finance applications. Aaron spoke with our team about the nature of the DeFi market, the future of crypto assets, and advice for current students and entrepreneurs seeking to enter the crypto asset space. Our Design team has outdone itself again on the visual front, providing data visualization and excellent custom graphics.

On a more personal note, and as I noted in our last edition, the Cornell Business Review has served as an incredible learning experience, both as a leader and student. Throughout my time as a writer, Managing Editor, and now Editor-in-Chief, CBR catalyzed countless hours of research and debate on topics ranging from finance to art. Jumping from in-person to a fully virtual environment in a managerial role taught me the importance of community and how resilient students can be in the face of uncertainty.

A special thank you to CBR’s Executive Board—to Helen Wang, our Design Chair, for the late nights and discussions on format, as well as for her team’s web mockups. To Kyle Castellanos and Madison Kang, our Managing Editors, who organized this semester’s editorial process. To Megan Frisica, our Business Manager, who kept us on-track and organized our fundraising efforts, and to Rishik Zaparde, who continued our web development process. To our entire team, whose efforts made this edition possible. And of course, to our readership for their continued support.

I hope you enjoy our work.

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Alexandre C. Taylor

Cornell Business Review

Editor-in-Chief Managing Editor Associate ME Business Manager Design Director Web Dev Chair

Alexandre Taylor Kyle Castellanos Madison Kang Megan Friscia Helen Wang Rishik Zaparde

CBR Now Chair Davis Donley Associate Editor Anya Gert Saurin Desai Raghav Madhukar Editor Alexei Rogatkin Dilan Minutello Emil Galhotra Emily Xiao Griffin Bua Maria Alexander Natalie Hughes Philip Matteini Strauss Cooperstein Tushar Chaturvedi Business Andrew Wallace Charlotte Hee Dylan Price Ellen Li Evan Byers Fermin Mendive Francis Bahk Grace Kim Jaclyn Liu Theo Kargere Yahm Rones Yejune Park Design Alexandra Kim Jessie Jiang Michelle Ren Zhang Nguyet Vo Yoo Jin Bae Website Dev Massimo Carbone

CONTENTS 04 Crypto Rewards 06 To Save Air India, Look Further East

08 NFTs and Community

14 Evergrande for Foreign Investors

18 Leverage Short

Reports, Don’t Fear Them

21 Energy Storage

24 Midlife Nostalgia Is

Driving Vinyl’s Comeback

10 Foreign Investment in Soccer Is Here to Stay

12 Inside Influencers

paign: Tiffany’s Repositioning Stumbles

30 An Exclusive Interview with Aaron Buchwald

TABLE OF CONTENTS

27 Not a Good Ad Cam-

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Crypto Rewards: Putting Your Hard-Earned Money to Work (for Bitcoin) Written By Philip Matteini

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onsumers can use cryptocurrencies to purchase more items than ever in today’s market. Private businesses, municipal governments, and other entities have begun accepting digital assets as forms of payment, an increasingly attractive option with rising inflation rates. While there are a few circumstances in which utilizing cryptocurrency as a form of payment might make sense, it remains impractical in most cases.

Cryptocurrency markets are notoriously volatile. In other words, the price one might pay for an item one day may not be what that same purchase is worth the next. Further, most companies experimenting with crypto payments, particularly in the retail space, only accept Bitcoin—this limits consumers that elect to invest in other cryptocurrencies.

Nonetheless, Americans and foreign consumers alike are intrigued at how crypto might work as a payment method. According to a recent study by PYMENTS. com, nearly 20% of American adults indicate they’re likely to make a purchase using cryptocurrency. Crypto payments provide an alternative transaction method for individuals without the necessary requirements to open a bank account or access traditional financing. It provides for an increased speed of transaction in unique cases (e.g., high-value, international transactions) and a greater level of anonymity in comparison to the U.S. dollar.

Still, the short-term price volatility of Bitcoin and other crypto assets render it ineffective as an electronic cash system. As Ollie Leech, Learn Editor at CoinDesk, said: “No person in their right mind would want to buy a coffee with Bitcoin. Say you pay $3 for [a] coffee, and tomorrow your Bitcoin could be worth $30.” Just one year ago, Bitcoin’s (BTC) value was under $10,000. Since then, it’s been priced as high as $65,000 and as low as $29,000.

In an attempt to bridge the gap between cryptocurrency investing and the modern consumer experience, BlockFi, a New York City-based financial institution, released its crypto rewards Visa Card in the summer of 2021.Gaurav Gollerkeri, BlockFi’s GM of Payments, described the typical credit card experience as “entirely uneventful.” This, according to Gollerkeri, is directly juxtaposed

by BlockFi’s crypto rewards offering, which garnered nearly 400,000 waitlist sign-ups

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prior to its August 2021 release. Rather than getting hung up on ephemeral concerns surrounding asset volatility, BlockFi is seeking to empower consumers by letting them earn crypto while making everyday, essential purchases.

given its three months of available data, BlockFi cardholders are on course to spend an average of $30,000 per year; 50% higher than major card issuers. Based on this projection, BlockFi card users are expected to spend more than $2 billion annually.

BlockFi has reported that Costco, Amazon, and Home Depot are where their cardholders spend the most. Notably, during the first month following BlockFi’s release, Compass Mining, a retail-friendly Bitcoin

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BlockFi cardholders earn 1.5x points per $1 spent on the card. If you spend more than $50,000 in a twelve-month period, you can earn 2x points per dollar spent after that.

Additionally, new cardholders can earn 3.5% back in Bitcoin rewards on all pur- A new spin on crypto chases made within the first three months investing of card membership; this offering is capped, mining company, was among the list of top however, at $100 in Bitcoin. ten merchants based on volume spend.

Cardholders also stand to benefit from crypto that they hold onto and crypto In the past twelve years since Bitcoin’s retrades conducted on BlockFi’s exchange. lease, timing crypto investments has proven Users can earn a 2% annual percentage a difficult task for retail investors. A report yield (APY) in rewards on stablecoin hold- from consumer spending data providings, up to $200. You can also earn 0.25% er Cardify demonstrated that investment back on eligible trades, up to a maximum of deposits have historically lagged behind $500 in Bitcoin a month. Cardholders earn the price spikes seen in Bitcoin and other $30 for each person they refer to the card. cryptocurrencies. Yet, with the exception of The card has no annual fee or foreign trans- the Reddit-fueled trading frenzy witnessed action fees and runs on the Visa network. in early 2021, consumers have never been so invested in crypto. For cryptocurrenIn October 2021, BlockFi announced its cy investors, crypto currently represents a number of cardholders had grown to over second all-time high 24.7% share of total 50,000 in the three months following the investment deposits. On an indexed level, card’s release. Its product announcement at crypto deposits are up 6x from the January the end of 2020 made Visa the first finan- 2020 baseline. cial institution of its kind to debut a crypto rewards card. Other companies, like BitPay Proponents of crypto rewards argue that and Coinbase, had already released debit credit card products signify a safer introcards that let users spend their crypto, but duction to the market as compared to retail use credit. The BlockFi credit card repre- investing. Because rewards represent “free sented the first product of its kind that in- money,” cardholders have viewed BlockFi’s centivizes users to spend U.S. dollars in or- card as a less risky option than simply inder to expand their crypto portfolios. Since vesting their own money into crypto assets. the announcement, competitors including Regardless of this perceived lesser risk, the SoFi, Venmo, and Brex (a partnership beopportunity cost of seeking crypto rewards tween cryptocurrency exchange Gemini as opposed to more traditional assets reand Mastercard) have released their own mains. Beverly Herzog, credit card expert versions of crypto-back rewards cards. and consumer finance analyst for U.S. News In the months since its release, users of and World Report equates crypto-back BlockFi’s crypto rewards card have strayed programs with “giving up a sure thing.” As significantly from consumer spending pat- with any speculative asset, it’s true that the terns of U.S. credit card holders. Based on value of crypto credit card rewards could the most recent financial statements from substantially increase over time—but it’s American Express, Mastercard, and Visa, not a guarantee the way points, miles, cash the average American credit card user back, and other common perks are with spends about $20,000 per year. By contrast, more conventional credit card options.

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To Save Air India, Look Further East Written By Tushar Chaturvedi

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ollowing a compounded annual growth rate of 20.3% in 2015, the highest ever recorded in the aviation industry, the Indian airline market is expected to stabilize at 10% until 2030. The explosion in airline demand is largely due to the country’s growing population and rising wages, with both trends set to accelerate in the coming decades. However, despite high market growth, Indian airlines collectively reported a two billion dollar loss in fiscal year 20202021, according to India’s Minister of State of Civil Aviation.

Many aviation markets, including India’s, followed a similar path to the United States’ after deregulation of the aviation industry in 1978. Previously, airlines in the United States were restricted to specific geographical areas, limiting airline coverage. After deregulation, airlines began providing direct long-distance flights, leading to fewer passengers and ultimately higher seat prices.

During the 1980s, the more cost-effective “hub-and-spoke” aviation model became more popular, in which connecting flights through large airports are used to reduce prices. Typically, “hub-and-spoke” airlines are Full-Service Carriers (FSC), meaning that they provide amenities such as meals and entertainment to passengers. However, due to the use of connecting flights, FSCs take longer than direct flights, leading to the development of Low Cost Carriers (LCC) such as Southwest Airlines. LCCs typically fly non-stop between origin and destination and often depend on lean service to maintain profitability.

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In India, the FSC industry has been dominated by the historically nationalized Air India, for which the Indian government instituted price caps of $35 for regional flights.

Indian subsidy of full-service aviation resulted in an uncompetitive and unprofitable market, with nearly a billion dollars of losses in the Indian airline industry attributable to Air India alone.

flights. Indian subsidy of full-service aviation resulted in an uncompetitive and unprofitable market, with nearly a billion dollars of losses in the Indian airline industry attributable to Air India alone. Another key piece of legislation, called the 5/20 rule, stifled FSC growth and spurred investment in LCCs. Under the rule, Indian airlines were required to operate domestically for five years and own at least 20 aircraft before offering international flights. Because the hub-and-spoke strategy is most profitable for long-distance flights and due to the price caps, Indian FSCs own under 300 aircraft compared to the 3,000 owned by In India, the FSC industry has been dom- major US airliners. inated by the historically nationalized Air However, with Tata Group’s $2.4 billion India, for which the Indian government acquisition of Air India—resuming coninstituted price caps of $35 for regional Cornell Business Review

trol 69 years after it was nationalized in 1953— and the replacement of the 5/20 rule for the 0/20 rule (meaning that Indian airlines no longer have to fly domestically for five years), the Full Service Carrier market is ready for new entrants and poised for growth. Although Air India’s service quality and punctuality are bound to improve after Tata Group’s acquisition, several changes will be needed at Air India to maintain its market position and attain profitability.

Indian airline companies do not need to look far for successful business models, and in fact can learn from their regional peers.

For instance, Singapore Airlines (SIA) created a best-in-class brand and premium customer experience while turning a profit pre-pandemic. Following SIA’s strategy, the first objective for Air India should be to invest in building a reputable brand experience. SIA built and elevated the flight experience through the creation of themes such as the “Singapore girl,” a famous female cabin crew uniform in use for over 50 years, pioneered innovative customer practices like personalized in-flight entertainment system (myKrisWorld), and leveraged the latest aircrafts for long commercial flights, and in turn, generated more brand equity.

SIA also converted challenges into opportunities. The airline similarly began with the disadvantage of possessing little to no domestic network and straightaway had to compete with international airlines. However, SIA took advantage of this challenge to benchmark systems processes and customer service. The specific Indian challenges of low margins and profitability necessitate greater automation, manpower utilization, and better contract negotiations, among other improvements. Fixing this cost base would provide them with a launchpad for harnessing higher volumes emanating from high market growth and traveller demand.

February 22, 2019: Visitors outside the Tata Aerospace stall at Aero India 2019, a five-day long biennial event showcasing Indian aeronautics. Tata Group now owns three major Indian airlines.

and Vistara (only two airlines in a position to increase their flights compared to their pre-pandemic peak in 2019), Tata Group can maintain unparalleled access to domestic and international routes.

However, Tata Group’s competitive edge could also be short lived if changes to the airline aren’t enacted. Emirates airlines has created a niche among various customer segments by offering innovative customer practices like pickup-from-residence and world media entertainment and in-flight services. To compete, Air India will have to innovate on its own terms.

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Post-pandemic anticipated growth is the silver lining that presents several opportunities for growth that determined and savvy airlines will be able to take advantage of. Air India should seek to leverage opportunities arising from the rising number of airports and growing urbanization. New

Delhi, India’s political seat, should be established as an international hub, especially for routing to Europe and the Americas and be able to compete against Singapore, Bangkok, Doha and Dubai. Although the FSC market is poised to be highly lucrative and has a highly addressable market, investors should remember that FSC aviation requires significant investment in wide-body aircraft, has a higher gestation period, and requires greater international networking. With ownership of Air Asia

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NFTs and Community: 2021’s Digital Goldrush

Source: Bored Ape Yacht Club

Written By Alexandre Taylor

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fter a two year slumber, Bitcoin (BTC) raced to $60,000 in March 2021 from a low of $6,000 the year before. Even over the past six months, the world’s first cryptocurrency has experienced incredible volatility before stabilizing at $55,000 in November 2021. Alongside Bitcoin’s recent runup began a new wave of investment and speculation in crypto assets, from currencies to digital artwork and beyond. However, unlike 2018’s crypto boom, which was fueled by Bitcoin’s recent notoriety, crypto’s recent boom is largely due to a growth in alternative crypto assets. Whereas Bitcoin

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dominance (or, the percentage of the crypto investment dedicated to BTC compared to the rest of the market) was at 65%, today Bitcoin dominance in the crypto market is only 42%.

The other major player in today’s crypto market is Ethereum, which has reached dominance of 20%, up from 11% the year before. However, for Ethereum, dominance doesn’t tell the whole story. Ethereum is effectively a network for building decentralized applications as well as smart contracts, which are programs that automatically

execute under certain conditions. Smart contracts can also hold unique, non-fungible assets such as artwork. These assets are called tokens, hence the naming convention for digital artwork: Non-Fungible Tokens (NFT). In the past year, NFTs have gained significant traction due to several unique technical aspects as well as creative marketing initiatives.

Regarding the technical aspects of NFTs, the tokens play an important role in the broader digital infrastructure of the internet. The current state of the internet, or “Web 2.0,” aggregates data to create value through advertisers, and due to the need to maintain brand standards exerts control over users. For example, a user purchases a digital illustration through an online marketplace. The marketplace, by offering no fees to its customers, aggregates user data and sells it to advertisers. At the same time, to maintain high advertising standards, the marketplace monitors and potentially censors certain buyers and sellers. Most importantly, the marketplace also ensures that all artwork is authentic and that services paid for are rendered.

Smart contracts present an opportunity to eliminate market makers and fundamentally change how users interact with other internet stakeholders. The same user can now purchase artwork directly from artists or on any Ethereum-based exchange using the NFT protocol. By removing the middleman, user data is concentrated within mutually beneficial transactions. In addition, because NFTs are digitally unique, artwork can be traded with complete confidence of authenticity. NFTs are also on a public blockchain ledger, so ownership can be verified by independent means.

During COVID lockdowns, internet users were increasingly eager to connect through more than social media and gaming lobbies.

Discord experienced its highest growth in users during lockdowns, nearly doubling in size to 100 million users. Bored Ape Yacht Club (BAYC) launched in April of 2021 and sold out nearly instantly. BAYC not only offered users the opportunity to buy a randomly-generated ape NFT (and therefore “ape in” as investors), but also access to the yacht club, a music streaming and digital hangout space for Bored Ape owners.

Bored Ape Yacht Club was an astounding success. To-date, BAYC has generated over $1 billion in trades and was the mostused application on Ethereum’s blockchain, dwarfing Winkelmann’s NFT offerings. A key to BAYC’s success, as for many NFT communities, is the randomness associated with purchasing an NFT. Since NFTs have randomly-generated attributes, and because NFTs are fully owned by users and can be sold on secondary markets, demand for certain attributes often results in vast appreciation of NFT assets. The Fat Ape Club, largely a spin-off of BAYC, introduced tangible benefits to NFT randomness. Fat Ape Club’s tier system, which segmented its NFTs into Fat Apes and Heroic Fat Apes, offered Heroic Fat Ape owners a $10,000 cash bonus. A Lamborghini Heroic Ape, also randomly chosen, would go onto win a Lamborghini Huracán. Other NFT communities offer exclusive events, such as parties in Miami and LA, to entice potential patrons.

The explosion of NFT value within communities is a natural next step for high-demand assets. Commodification allows for long-term marketing initiatives that are not possible for one-off pieces of art. Ironically, the NFT communities like Bored Ape Yacht Club are closer to Web 2.0 than the decentralized and user-centric internet promoted through smart contract protocols.

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The first major NFT auction was in 2017, when Axiom Zen released a series of catthemed digital trading cards called CryptoKitties. The token, which allows owners to “breed” other CryptoKitties, raised $1.3 million during its initial release. Perhaps the most famous NFT project is Mike Winkelmann’s Everydays: The First 5000 Days, which sold for $66 million in March 2021. Winkelmann’s success, alongside other NFT projects, not only catapulted

NFTs into the investment spotlight but also opened the door for entrepreneurs to engage audiences by developing NFT communities, which are networks that propagate NFT concepts and grow organic user bases.

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Foreign Investment in Soccer Is Here to Stay Written By Dilan Minutello

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occer, the world’s most popular sport, and its organizers have faced several crises over the past few years. In 2015, a corruption scandal unfolded within FIFA, the sport’s worldwide governing body.

U.S. federal prosecutors indicted several FIFA executives on charges of wire fraud, racketeering, and money laundering. FIFA officials forced Sepp Blatter, FIFA’s president, to resign, with Blatter subsequently banned from participating in any football related activity for eight years. This, along with the large losses faced by clubs over the course of the COVID-19 pandemic, led large clubs across Europe to form the European Super League (ESL) in early 2021. The league, independent of FIFA’s regulations, preselected the best clubs to compete against each other and control their own television viewing rights.

Amidst public outcry, the European Super League never gained traction and was quickly disbanded.

Effectively, the league would allow the wealthiest and most prominent clubs to play against each other more frequently. For smaller, less-popular teams the ESL would cut out important revenue from games with teams such as Real Madrid in Spain and Manchester United in England.

Would-be backers of the ESL, such as JP Morgan Chase & Co., quietly left the teams to their own devices.

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Yet the development and failure of the European Super League displays a shift in football clubs, away from the status quo of fan-centric revenue to private investment. A number of clubs have had their trajectories greatly altered by generous external investment from wealthy backers, almost exclusively foreign, such as Paris Saint-Germain F.C. (Qatar) and Manchester City F.C. (United Arab Emirates). Dozens of teams across Europe’s top domestic leagues, such as the German Bundesliga, Italian Serie A, Spanish La Liga, and French Ligue 1, have also been bought in the past few years by foreign companies, individuals, or state-sponsored enterprises.

A few teams thrived under foreign investment: Paris Saint-Germain and Manchester City progressed from mid-level teams to perennial title winners and Champions League title contenders. They have also generated considerable amounts of revenue. Of the top fifteen clubs in football ranked by revenue in the 2019/2020 season, eight are owned by foreign investors, and three of them owned by American businesses. The clubs’ annual profits regularly sit between 300 and 700 million euros, with television rights selling for billions of euros.

dle Easterners, and Chinese aristocrats financially backing teams has seemingly given way to a new wave of club financers. The traditional management structure behind clubs in the European and global professional club soccer market has been increasingly uprooted by credit, investment, and private equity funds. AC Milan, one of Italy’s biggest clubs, was bought by Elliot Management Corporation in 2018 after their previous owner, Chinese national Li Yonghong, defaulted on debt obligations. Some firms have loaned money to help clubs stay afloat. Others have purchased media rights, some bought numerous smaller teams with longer term plans for growth and development.

With shorter contracts and more players on the move, cash injections can help teams build better rosters and recruit big names. Newcastle United, an English team, was historically a perennial Premier League team with little top-level success. In October of this year, the Saudi Arabian public investment fund purchased the team for $409 million.

With a large amount of that money under the disposal of the team’s management, the team is expected to embark on a spending spree come the next open transfer window in January. Newcastle will look The era of rich soccer-passionate to buy up the contracts of several billionaires, petroleum-rich Midbig named players that find them-

Fans protest against Manchester United competing in the European Soccer League, April, 2021

selves dispensable ine the plans of their current club or are unhappy with their current role. By the end of the year, Saudi investment could help make Newcastle make significant progress towards being one of the top teams in England.

However, these returns are far from guaranteed in any sports league, including European soccer. Owners must delicately balance inflated player salaries, politics, impatient and overzealous fans, and the threat of demotion within the domestic leagues. The European Super League would have eliminated the concept of demotion, which is not

present in American professional sports. Additionally, by featuring only the best teams, the ESL would benefit from increased demand by demanding higher ticket and game pass prices. In turn, the clubs themselves would become more valuable.

Clubs have been able to expand their budgets tremendously thanks to the backing of rich individuals or organizations. Larger budgets lead to high player valuations and more movement of players between clubs.

It is now seldom to find a player that has played for a club his entire life; even Messi left his lifelong club of Barcelona, a traditional European giant that suffered terribly due to the pandemic to go to Paris Saint Germain, a newer club that has bought several of the world’s best players off Qatari dollars.

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Americans have also turned their eyes to the European soccer market. Kyle Krause, CEO and family owner of the convenience and gasoline station Kum and Go, bought Italy’s Parma team in September of 2020. KPMG, a consulting firm, estimates that Americans own stakes in 12 European soccer teams. Owning sports teams has long been of interest to American billionaires, such as the previous CEO of Microsoft Steve Balmer’s purchase of the Los Angeles Clippers for two billion dollars. However, for less-

wealthy sports enthusiasts, European soccer clubs provide a more price sensitive entry onto the global sports stage. Wolverhampton Wanderers, an English team, was reportedly sold for $45 million in 2016. In addition, teams which perform better than expected can see incredible valuation growth. The Clippers are now reportedly worth $2.63 billion dollars, rounding out to a $650 million gain for Steve Ballmer.

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Inside Influencers: Management, Media, and Content Houses Written By Emil Galhotra he growth of social media has indisputably altered the marketing landscape in the last decade.

Traditional media—such as television and magazines—are hardly obsolete, but are typically produced by established conglomerates in their respective fields. Often, these firms are slow to pick up on trends and fail to grow organically with consumers aged 18-24. However, social media allows individuals to create content in the convenience of their homes while tapping into a wide range of demographics and establishing a core audience that businesses can leverage in their advertising efforts. Ultimately, the ability to create and monetize online media has given rise to new opportunities for online content creators to make a living and build a brand through sponsorships and company partnerships, contributing to the growth of influencer talent management companies and their content creation “houses.”

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The channels through which individuals consume media have broadened to include user-generated content on social media platforms, shifting some control of media from large organizations to individuals. Before the widespread use of social media, the path to a meCornell Business Review

dia career was significantly more standardized, with talent agents recruited to seek out media stars and auditions determining roles in paid content. However, over the past decade per-person media consumption has increased to 6 hours and 45 minutes (with Gen Z consuming up to 8 hours a day), and today platforms like YouTube and Instagram provide a space for virtually anyone to build an audience and make a living from content creation. Because uploading content to social media platforms is free for would-be marketers, influencer marketing is seen as an attractive way to generate income without the significant financial risk usually associated with starting a business.

Brand marketers have responded to the rise of social media and online personality cults by increasing their investment in influencers. In fact, in 2020, the global market size of influencer marketing was $9.7 billion, up from only $6.5 billion in 2019.

At the same time, brand marketing strategies have fundamentally changed since the mid-2010s, with more brands sponsoring content and developing long-term partnerships with influencers. Historically, influencers were most often hired for one-off marketing campaigns

on social media. However, nowadays influencers are typically hired for multi-year periods and are even leveraging their social status to advertise their own brands. Kylie Jenner, likely the world’s best-known influencer, is reportedly worth $620 million due to her Kylie Cosmetics label, which is advertised primarily through Instagram.

For influencers with smaller audiences, talent management companies have emerged to assist influencers in growing their brand.

Influencers can connect with companies in a wide variety of ways, either through email and social media or via platforms that facilitate influencer-brand connections, such as Instagram’s Brand Collabs Manager, which enables companies to search for influencers and brands to create profiles and discover potential partners. Talent managers assist in finding partners, but also offer legal and strategic consulting.

One of the most well-known talent management companies is Viral Nation, which offers influencers custom brand, legal, and strategy consulting. Viral Nation initially found success on Vine, the “A.D.D.-enabled video-sharing service” which was TikTok’s predecessor. Back in

Members of Sway House pose for a photo.

Source: Instagram

2015, most of Viral Nation’s clients made between $3,000 and $9,000 a month from their advertising efforts. Today that number has ticked up to between $5,000 and $11,000, with top influencers like Kylie Jenner making up to $250,000 per post. Consequently, talent management companies such as Live Nation are posting record returns. In 2018, Viral Nation generated a $20 million dollar profit according to its co-founder Joe Gagliese.

Yet the demand for influencers continues to grow, as do the number of content houses and influencers under management. A 2021 report by Social Media Examiner surveyed marketers and found that, of the companies surveyed, 64% indicated they would increase their marketing on Instagram while 62% said they would increase their marketing on Youtube in the future. On the othMost content houses, such as Sway er hand, only a small percentage House and Hype House, have conof marketers surveyed planned to tent quotas for live-ins. Accorddecrease their marketing on Insta-

gram and Youtube— 4% and 2%, respectively.

In many ways, the continued demand for monetized content has necessitated the development of content houses and therefore the management companies which finance them. Although young influencers generate significantly more income than their peers, few teenagers have the financial autonomy to rent a $30 million dollar home.

A newfound dependence on influencer marketing by brands has led to an explosion of content as well as rapid growth in talent management focused exclusively on viral content.

Firms will doubtlessly continue to increase their marketing budgets as competition for influencers heats up. However, as more influencers join Instagram, YouTube, and other social media platforms, the talent management industry is approaching a crossroads. To maintain growth, talent managers will have to grow their talent base while producing unique, high-quality content which is distinguishable from competitors and their current content houses.

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Talent management companies are also behind many influencer content houses, which are physical spaces for influencers to record and live in. They also serve to generate buzz and portray the upper-class atmosphere typically associated with social media influencers. These houses, often located in Southern California, are worth between five million and ten million dollars.

More established content creators, such as the gaming group FaZe, live in a 30 million dollar mansion in Burbank, CA.

ing to Jason Wilhelm, co-founder of TalentX entertainment, which owns the Sway House, reported that “You wake up and they’re just filming, You walk in the house and they’re [still] filming.” However, although influencers live in mansions in southern California and make hundreds of thousands of dollars a year, burnout is constant. “The lifespan of these social media creators isn’t long. Unlike Hollywood, where you can take a few years off and get back in with a hit movie, [influencers] have to be constantly working.

Tons of creators end up dropping out.” reported Taylor Lorenz of the New York Times.

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Evergrande for Foreign Investors: Limiting Contagion Worries Written By Strauss Cooperstein

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vergrande and other indebted Chinese property giants are on the verge of collapse, proving to be one of the biggest tests to China’s financial system. Evergrande owns more than 1,300 real estate projects across 280 Chinese cities in addition to its other consumer businesses and theme park holdings. For context, Evergrande’s total liabilities collectively amount to roughly 3% of China’s annual GDP. Domestic home buyers and investors have protested at Evergrande’s headquarters demanding repayment of overdue loans, and implications for foreign investors remain unclear. Given that Evergrande’s shares and bonds can be found in many Asian funds and indices, foreign and local investors alike fear “cross default.” In fact, a potential credit default swap would protect the interests of onshore suppliers and creditors (banks and households) at the expense of offshore equity and bond holders. In order to reduce global contagion worries and reassure foreign investors, Chinese authorities, regulators, and the People’s Bank of China (PBoC) must consider implementing gradual monetary policy to begin slight easing and sharing

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Chinese authorities, regulators, and the People’s Bank of China (PBoC) must consider implementing gradual monetary policy to begin slight easing and sharing a government plan before any credit event occurs.

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a government plan before any credit event occurs. Waiting to observe a continued decline in property sales and weaker domestic consumption will only increase negative sentiment regarding contagion. On the flip side, bailing out Evergrande too soon will only perpetuate moral hazard in China’s property sector.

When considering any spillover into the global economy, investors should recognize that Evergrande is not a “Lehman Moment” given several qualitative and quantitative differences, and instead is a controlled implosion as a result of President Xi’s deleveraging and de-risk initiatives. In fact, the Evergrande crackdown was caused by Chinese regulators concerned with real estate speculation and who plan to test the company’s ability to make interest payments.

By initiating property lending restrictions, the “three red lines” policy, and centralized land auctions, Chinese state intervention in its financial and mortgage markets is unlike that of the US’ financial system.

This demonstrates Beijing’s commitment to making an example of Evergrande and then resolving the liquidity situation internally, without causing any intended global spillover. Quantitatively, Evergrande’s current liabilities of approximately $300 billion USD (2% of China’s GDP) is still less than Lehman’s $613 billion USD (4% of US GDP in 08’). In addition, the Lehman liabilities were far more entangled in the less regulated and transparent subprime MBS and derivatives markets at the time.

The current Chinese property development sector is healthy and almost 30% of national GDP yet only represents 8% of total

Aerial view of Evergrande multifamily properties in Kunming, China

Chinese financial sector assets. This distribution suggests that contagion will be less systemic than Lehman, only moderately connected to the financial sector, and at worst limited to within China.

The delay in bailing out Evergrande primarily stems from the CCP trying to teach overleveraged real estate companies a lesson and

about how to best manage highly indebted property developers. For example, the party elite blockage of Xi’s proposed national real estate property tax represents a divide in CCP intervention strategies. In order to establish a more egalitarian China, Xi’s “common prosperity” drive has pushed for reducing housing prices and increasing the costs of real estate speculation to help middle-class families. Meanwhile, party elites are concerned that they themselves cannot afford additional taxes and that an overconcentration of household wealth in real estate may make homeowners feel their wealth has declined, reducing their willingness to consume goods.

These concerns are exacerbated by Covid restrictions and related supply chain disruptions, which are leading to downward pressure on

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Contagion will be less systemic than Lehman, only moderately connected to the financial sector, and at worst limited to within China.

in turn restructure China’s credit market system. The situation is currently monitored by watching Evergrande make coupon payments, scramble to sell off its assets including executive aircrafts, and observing any changes in property sector slowdowns that may influence headline economic growth.

While resolving credit market contagion may be financially disruptive in the short term, Chinese regulators are also deciding how to best eliminate moral hazard. To do so, it would require a major repricing of credit and corresponding reallocations of credit risk portfolios, since historical loan and bond portfolios have been built off political perceptions. Another possible reason for the delay is the divide between Xi Jinping’s agenda and internal party elites who have different ideas

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China Residential Prices, Index 2010=100 (FRED)

household consumption and Chi- rates or is fully committed to stana’s import market. bilizing its debt growth in the short term. Therefore, Xi’s focus on “comNevertheless, approaching a po- mon prosperity” initiatives in the tential 3rd term of office, President property sector may eventually have Xi has called Evergrande a major to take the back seat to make way “challenge” that would impact his for flexible, pro-growth monetary reputation if not managed. Some tools that align with China’s eveneconomists have argued that real tual easing strategies. Alternatively, estate defines modern China more a “dual track system” of affordable than any other market. This is especially true given that the property sector contributes just under a Xi’s focus on third of Chinese economic output and GDP growth is a major metric “common prosfor continued political legitimacy of perity” initiatives in Xi’s party state. Further, China’s official debt to GDP ratio has soared the property sector by nearly 45 percent in the last five may eventually have years, which proves that achieving politically determined GDP growth to take the back seat requires some continuation of morto make way for flexal hazard. Whenever its high-quality growth slows down, Beijing uses ible, pro-growth monits “residual” GDP growth targets etary tools that align or its lower quality activities like property based malinvestment to with China’s eventual boost its numbers. It doesn’t seem easing strategies. that China is ready to fully accept lower and healthier GDP growth

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housing provided by state owned enterprises is another less controversial approach. Improving the macro conditions of China’s real estate sector and improving broader financial stability will require an entire party effort and cannot fully be accomplished in advance of the next party election. Thus, President Xi may need to relax his cult of personality that criticizes “excessive capitalist behavior” and instead focus on muting potential domestic and international contagion channels.

Expected next steps for regulators and Chinese authorities to reduce any contagion in economic, credit, or market channels may include slight policy tweaks rather than full easing. Firstly, one strategy is to grant a longer transition period for developers to meet the “three red lines” of debt reduction, which include more flexible limits on its debt to asset, debt to equity, and cash to short term debt ratios. Secondly, authorities that control the closed Chinese financial system can pressure banks and other institutional

creditors to extend loan repayments. Thirdly, local governments can invest in rental properties and government backed housing while relaxing policies related to price controls or land supply. As a complicated last resort, some Evergrande executives have expressed open-mindedness in allowing local governments and state-owned developers to overtake the group’s operations on a “region by region” basis.

In a similar vein, sharing a government plan before any Evergrande credit event would help mitigate contagion worries for foreign investors. The government has remained silent since it anticipates a largely muted spillover effect in non-property sectors of the Chinese economy and a tactical preference to act rather than release statements.

One example of this is using broader PBoC monetary policy tools like a cut in the required reserve ratio or adding short term cash, but these should not be as frequent given Beijing’s higher recent tolerance for economic slowdowns. Another example is forcing Evergrande to sell its stake in Shengjing Bank, a state-owned asset management company. While these actions are productive in reducing short term domestic contagion worries, they are not as effective in reassuring investor confidence in offshore markets that liquidity is returning to normal levels. Instead, a government plan can help communicate to foreign investors that consumer confidence and home buying intentions are stabilizing despite the continued pressure on weak developers. In parallel, a well-constructed plan can reassure that the structural underpinnings of the real estate market are in place and slowing Chinese growth is more related to Covid outbreaks, the ongoing energy crisis, and other supply bottlenecks.

PBoC liquidity tools continue to reassure Asian investors that a sound debt restructuring can occur. However, local banks will be first in line for repayment as they continue to fund real estate growth, along with other Chinese creditors before addressing foreign creditors’ needs and concerns. Paying attention to any lawsuits from these foreign creditors or equity and bondholders suffering immense financial losses will be another sign of measured risk when investing in China.

FINANCE & ECONOMY

While global investors continue to offload high yield-bonds issued by these cashstrapped developers, it is important to remember that while property policy easing may take time, further tightening is unlikely now. The liquidity position of current developers including Evergrande will be the best determinant of how bonds price and trade, especially considering the minimal policy adjustments to be made through the end of this year. Fortunately, domestic spillover has also been relatively contained as

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The liquidity position of current developers including Evergrande will be the best determinant of how bonds price and trade, especially considering the minimal policy adjustments to be made through the end of this year.

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Leverage Short Reports, Don’t Fear Them Written By Alexei Rogatkin

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hort reports have been a prevalent part of the stock market for decades, but have notably become more common over the last several years. There were an average of 2.5 reports per year between 1996 and 2009, but that number has grown to a whopping 35 reports per year from 2010 to 2018. As such, navigating the muggy waters of short reports is an increasingly important skill for investors, both institutional and retail.

Short reports refer to when a short-selling institution releases a document detailing their reasons to short sell a stock. These reports often drum up negative speculation among investors, leading to a sharp drop in the stock prices of the companies in focus. On the other hand, many investors rely on such price drops to buy stocks at a discounted price. Thus, short reports create opportunities and carry inherent risks that make analyzing these companies challenging.

On Wednesday, October 7, 2021, Scorpion Capital -- one of the most notable short selling institutions in the United States -- released a report on Ginkgo Bioworks (NYSE: DNA). In this “harshly critical” report, Scorpion called Ginkgo a “colossal scam, a Frankenstein mash-up of the worst frauds of the last 20 years.” Unsurprisingly, in response to the report, Ginkgo’s stock price fell from almost $12 to $9.47 in just four days. A steep drop in price represents one side of what is called the “short report debate”: the push and pull of investors’ reactions to short seller reports. Cathy Wood, a notable institutional investor, exemplifies the other side of the debate. Ginkgo is a stock that Wood backed heavily leading up to the short report. Wood, however, did not flock away from Ginkgo following the short report; she doubled down on it,

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buying over 8 million shares for her funds.

Interestingly, from Monday, October 11 to Tuesday, October 19, Ginkgo’s stock price skyrocketed from $9.47 back up to $14.81.

DNA now sits at $12.97, holding relatively constant since the short seller report. Many investors lost millions of dollars, but if an investor timed their purchase correctly, one could have grown their investment by over 50% over the course of a few days. As such, the “short report debate” continues to rage on as short seller reports get released.

Although most investors see short-seller reports as a signal to avoid or short the attacked equity, short seller reports create buying opportunities depending on who releases the report, the response of the attacked company, and the characteristics of the attacked equity.

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Although most investors see short-seller reports as a signal to avoid or short the attacked equity, short seller reports create buying opportunities depending on who releases the report, the response of the attacked company, and the characteristics of the attacked equity.

Since short sellers hold the equities that they report on, the short-seller has a monetary incentive to make the equity appear fundamentally overpriced. In some cases, short

sellers use smear campaigns to drive down the stock price, thus profiting as the price drops by shorting the equity. “Short and Distort” (S&D) is one tactic that results from these monetary incentives. S&D traders can manipulate stock prices by buying short positions or fast-expiring put options, followed by a smear campaign to drive down the price of the targeted stock. This is the mirror image of the better-known “pump and dump,” where investors promote speculative stocks before selling their positions at the top. S&D campaigns cause investors to flock away from the targeted equity, thus driving down the share price. With these monetary incentives for short sellers, it is clear why some short reports are not accurate and are part of a bigger smear campaign to gain quick profits. Furthermore, “cases against short sellers are rare… given free speech protections and companies hesitant to put themselves under the microscope of regulators,”

according to Activist Short Selling research. Although investors’ initial reactions to short reports are to sell their positions and stay away from the attacked equity, short reports can actually create opportunities to buy fundamentally sound stocks at heavily discounted prices. Navigating short seller report credibility is often difficult, but company fundamentals can help investors with long positions mitigate their losses.

Two of the most common characteristics of firms on the stock market are overvaluation and uncertainty.

Overvaluation has been a common theme during the strong 2020 2021 bull market, with many stocks trading at multiples never seen before by the marketplace. Some common themes among these stocks are high P/V ratio, high asset growth, and price run-ups. With the surge in SPACs over late 2020 into early 2021, investors have seen many uncertain SPACs thrive and others crash and burn. Highly uncertain

stocks have features such as low accounting quality, few dedicated institutional investors, non-Big Four auditors, and internal control weaknesses. A 2017 study compared uncertain and overvalued stocks and their price responses to short seller reports. Short sellers typically target firms that have both uncertainty and overvaluation features because of several reasons. Uncertain companies have an investor base that is easily influenced because investors are not sure how precise company information is. This creates an environment where investors flock away from uncertain stocks if presented with new information from a short seller report. Short sellers target overvalued firms because they have a higher likelihood of a large price drop. However, some short seller reports target either overvalued or uncertain stocks, and investors can use this information to help navigate the short- and long-term stock market reactions.

Short report. Source: Yahoo! Finance

10/7: Scorpion Capital Releases Short Report

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Depending on the characteristics of the attacked equity -- overvaluation or uncertainty -- the stock price reacts in different ways over the short- and long-term. For investors with long positions on overvalued stocks, long-term losses depend on overvaluation features more than short-term losses. Because of the nature of overvalued companies, long-term losses reflect firm fundamentals captured by overvaluation features. For example, if a stock is overvalued and a short seller releases a report, the stock is likely to reset to its expected valuation or lower -- and the chances that it recovers back to overvalued prices is less likely. On the other hand, short-term losses for investors with long positions depend more on uncertainty features. Given the nature of the investor base for uncertain stocks, investors are more likely to flock away from an uncertain stock in the short-term if presented with new information from a short-seller report. However, the uncertain nature of the stock gives it the opportunity to recover over the long-term. Finally, the 2017 study finds that short-selling cases covered by media or initiated by reputable short-sellers lead to more negative returns.

Investors, then, should deeply analyze who released the report and its media coverage when deciding whether to buy more, hold, sell, or short their stock. After analyzing the fundamentals of both the attacked equity and the short seller, investors should consider the attacked company’s reaction to the short report.

The attacked equity’s response, together with the initial stock market reaction, is an indicator of the credibility of the short report. One study looks at over 350 short seller reports between 1996 and 2018 and the associated reactions by the attacked equity and stock market. In their sample, 31% of firms respond through a press release, conference call—providing additional information to investors—file or threaten lawsuits against the short seller, or launch investigations through an outside counsel.

The attacked firm’s reaction to a short seller report can be an indicator for the final outcome of the stock price. Firms with subsequent fraud findings following short reports

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are much more likely to launch internal investigations and much less likely to make statements that could create additional liability for the firm. These firms are also twice as likely to be delisted and are acquired at a rate less than 50% compared to the overall sample, and thus have more negative stock price outcomes. Investors, then, should carefully look at a firm’s response and deeply analyze any statements in response to the report. Lawsuits against short sellers, on the other hand, usually occur in the most severe circumstances -- when the accusations have the most negative impacts on stock price.

These lawsuits are a result of the initial stock market reaction, rather than a mitigant. Lawsuits can mitigate long-term decreases in stock price, but have little utility in the short-term. Since lawsuits are costly and put companies under a microscope, they are usually a response to a severe drop in stock price. Both internal investigations and lawsuits can be negative indicators for firm outcomes in many cases. On the other hand, nonresponse is associated with more muted stock price response to the report release and fewer adverse outcomes. Thus, nonresponse and public statements are oftentimes the most positive indicators of stock price responses and risk.

Short reports can suddenly change investor sentiment, so navigating the muggy waters created by short seller reports is an increasingly important skill. Although short reports are traditionally seen as indicators to flock away from the targeted stock, institutional investors like Cathy Wood show how to increase returns by taking advantage of opportunities presented by these reports.

Investors should first look into the short seller that released the report, and analyze the potential for a short and distort campaign intended to generate quick profits.

Next, firms should review the features of the attacked company and if they are overvalued, uncertain, or both -- as these can be indicators for short- and long-term returns.

Finally, investors should analyze the responses of attacked firms, and whether they choose to launch an internal investigation, sue the short seller, issue a press release, or simply not respond.

Energy Storage: An Electrifying Investment Opportunity Written By Davis Donley

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hile the world moves away from carbon to wind and solar power, the energy storage market represents a $1.2 trillion opportunity as storage plays a key role in the electric grid’s transition to renewable energy. Energy storage is crucial in decarbonizing the energy grid because it can help mitigate the intermittency of wind and solar and help deliver power when required. While the cost of electricity from solar declined 89% in the last decade, renewables must be paired

with energy storage systems to deliver energy reliably. Due to the tailwinds of government subsidies and investment, a massive total addressable market, renewable energy’s dramatically declining cost curve, and the growing emphasis on ESG among institutional investors, the energy storage industry is a promising investment opportunity.

in Environmental, Social and Corporate Governance (ESG) themes.

Investors have widely lauded the dozens of electric vehicle IPOs in the last couple years, such as Rivian and Lucid Motors. As capital pours into EVs and share prices climb dramatically, investors base their enthusiasm on government subsidies for EVs and the opportunity stemming from their addressable In 2021 alone, venture capitalists market. Investor sentiment surinvested $49 billion into climate rounding electric vehicles and EV tech amidst government subsidies components has reached high levels and increasing investment interest

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As capital pours into EVs and share prices climb dramatically, investors base their enthusiasm on government subsidies for EVs and the opportunity stemming from their addressable market. Investor sentiment surrounding electric vehicles and EV components has reached high levels of fervor, meanwhile energy storage stocks remain under the radar.

of fervor, meanwhile energy storage stocks remain under the radar.

While EV stocks have the makings of a bubble, neglected cleantech industries such as energy storage have a much greater potential for capital appreciation.

In the mid-2000s, countless cleantech companies were founded by entrepreneurs, and investors poured more than $50 billion into them. Rather than solving the issue of climate change, the first cleantech bubble emerged. Many of the cleantech startups during this period went belly up, and the United States was no closer in tackling climate change. As investor sentiment towards cleantech reaches levels of fervor, investors now wonder if this time will be different.

Fortunately for investors, tailwinds have emerged for cleantech companies to thrive commercially in a way that was not possible in the mid2000s. The first difference between today and the cleantech bubble is that renewables are now price-competitive with fossil fuels. In 2009, electricity from solar power was over four times more expensive than electricity from natural gas.

By 2019, significant innovation in cleantech has resulted in both solar and wind energy becoming cheaper than any fossil fuel source. For in-

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stance, the price of electricity from solar declined 89% in the past decade. Moreover, the relative cost of renewables in comparison to fossil fuels will only decrease in the coming years as technology improves.

Secondly, the cost of lithium-ion batteries has decreased by 80% between 2010 to 2019. Lithium-ion is the most popular battery in energy storage due to its cycle life, performance, and cost. Overall, the decreasing costs of renewables combined with rapid cost reductions in battery hardware enabled energy storage companies to become economically viable.

data centers to reach their net zero targets, warehousing infrastructure must run on renewable energy, which can only be paired with energy storage. The $555 billion budget deal focused on cutting carbon emissions by 2035 is yet another catalyst which will help the energy storage industry. In order to decarbonize the grid, the Biden administration has placed market incentives and research and development behind energy storage. Moreover, a tax credit for storage paired with solar has accelerated deployment of energy storage. As a result, global energy storage deployments will nearly triple in 2021 compared to last year.

The global battery energy storage systems market size was valued at $3.4 billion in 2019 and is projected to grow at a compound annual rate of 27.2% over the next decade. Analysts anticipate that rising demand for reliable power supply in industries such as industrial, telecom, data centers, marine, and medical are expected to drive energy storage growth. Data centers are in desperate need for uninterruptible power supplies as losses incurred due to power outages exceed $50 billion annually in the US. Due to recent power outages, the residential storage markets, particularly in Texas in New York, will continue to surge. The US and China are estimated to command 70% of global energy storage by 2030. According to an analysis from Wood Mackenzie Power & Renewables, “total demand for energy storage between this year and 2030 could be close to 1TWh worldwide.”

A second fundamental difference between the cleantech bubble and present day is the corporate focus on ESG. Hundreds of American companies have pledged to reduce their net emissions to zero in the coming decades and have begun acting accordingly. The world’s largest companies have already begun partnering with energy storage companies, as without inexpensive long-duration energy storage, the goal of net zero emissions is impossible. “You must have enough storage to last for extensive periods,” says Shankar Ramamurthy, chief executive of the Energy Internet Corporation, an energy technology and storage firm. Another fundamental shift from For intense energy users such as the mid-2000s cleantech bubble is

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funding. With so many small energy storage companies going public, it’s difficult to measure the competitive advantages of each and which one can capitalize on the massive total addressable market. Warren Buffett, chairman and CEO of Berkshire Hathaway, has avoided energy storage just for this reason, writing that “understanding the economic characteristics of a business is different than predicting the fact that an industry is going to do wonderfully. So when I look at the internet businesses or I look at tech businesses, I say this is a marvelous thing but I don’t know who’s going to win.”

The energy storage industry is a promising story as storage sits at the intersection of the grid transition, but it’s still in its infancy, making it too difficult to invest in individual energy storage stocks. Investors often discuss the first mover advantage of companies and believe that simply because a company enters a market first that it has the ability to absorb large market share. Investing in innovative energy storage companies may seem appealing today, but investing in the first mover does not yield good returns if other firms disrupt them with superior technology. For the energy storage market, it would be much wiser to invest in the last mover, the company which makes the last great technological innovation and enjoys years of monopoly profits. No matter how much the world needs energy storage to decarbonize the grid, only companies that offer a unique and superior solution to the long-duration storage problem can generate profits for shareholders.

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that cleantech startups now have challenge. The financials and fundasoftware at their core, making them mentals of cleantech companies are more scalable and capital efficient. sounder than they were during the cleantech bubble, but competition has also become more fierce. ReAnother fundaduced costs of renewables, coupled mental shift from with a drop in prices for lithium-ion the mid-2000s cleantech batteries, has led to numerous enbubble is that cleantech ergy storage companies developing startups now have soft- unique long-duration technologies.

The $1.2 trillion market opportuware at their core, mak- nity over the next three decades is ing them more scalable promising for the industry, but a trillion-dollar market means ruthand capital efficient. less, bloody competition. Peter The mid-2000s cleantech compa- Thiel, co-founder of PayPal and fanies were mainly biofuel, EV, bat- mous venture capitalist, recounted tery, and solar panel startups. These his experience during the cleantech businesses had high capital expen- bubble: “in the 2000s, I listened to ditures due to the development dozens of cleantech entrepreneurs of large-scale manufacturing and begin fantastically rosy PowerPoint production strategies. Many en- presentations with all-too-true tales ergy storage companies today are of trillion-dollar markets—as if that hardware agnostic with a software were a good thing.” In the midfocus, enabling scalability of their 2000s, cleantech companies enticed businesses. In the cleantech bub- investors with promises of a massive ble, there were hundreds of highly total addressable market, but they capital-intensive businesses with failed to differentiate themselves undifferentiated products, with the from their competitors. Thiel notes goal of decarbonizing the world. that “Customers won’t care about Few of these companies survived. any particular technology unless it In 2021, energy storage companies solves a particular problem in a suare often software-centric, so the perior way. And if you can’t monopcleantech landscape looks very dif- olize a unique solution for a small ferent. For example, Tesla deployed market, you’ll be stuck with vicious 1,295MWh of energy storage in competition.” High growth industhe third quarter of 2021 and has tries, such as energy storage, attract recorded a 96% compound annual top-talent creatives and entrepregrowth rate in deployments over neurs, making it difficult for investhe last four years. Tesla’s success tors to pick the winners. proves that a differentiated prodIn the initial phases of the infant uct with superior technology in the energy storage industry, there will cleantech space can achieve trebe many small competitors, many mendous growth. of whom will likely not survive. As While the energy storage industry a result of the hundreds of SPAC itself is poised for explosive growth, IPOs in 2020 and 2021, numerpicking individual stocks within ous cleantech companies have gone the industry is an entirely different public and received substantial

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Midlife Nostalgia Is Driving Vinyl’s Comeback Written By Maria Alexander

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hirty years after Sony ceased vinyl production, the electronics and media conglomerate announced in 2018 that it would renew record pressings. Although the more convenient and fashionable CD largely replaced vinyls in the mid-1980’s and 1990s, the music industry has since moved to a largely virtual format. However, vinyl sales began to rebound in 2006, informally known as the start of the “vinyl revival.” In fact, vinyl sales have grown for the 15th consecutive year since 2006, a more than 30-fold increase, with over 60% of vinyl buyers over the age of 35.

The Sound Behind Behind the Boom

digital file is re-converted into an analog sound wave, leading to loss in audio quality.

Similarly, before the introduction of lossless audio, digital streaming also led to quality loss. Because sound waves are directly engraved into the surface of the vinyl, no audio quality is lost in re-conversion.

In addition, vinyls offer several advantages which lossless audio streaming does not.

In contrast with the fast-paced culture of streaming, vinyls are an emotional investment for consumers. Many record enthusiasts, like George Johann, founder and owner of Ithaca’s Angry Mom Records, says that there’s an inexplicable mystique and warmth in vinyl sound.

“I’m not sure what the science behind it is, but there’s just something there. Everyone always talks about the warmth. I think there’s a more direct, less tweaked sound,” Johann said. “You hear a good record compared to a really good CD and you just know it when you hear it. You just know it.”

Moving beyond the sound itself, the physicality of the product is refreshing in an increasingly digital world. Unlike Spotify and Apple Music, which make listening automatic with the press of a button, vinyl inFigure 1: Lossless input and digital output at different bits volves meticulous care of the record and its Although major streaming services such supportive audio system. Buying a physical as Spotify and Apple Music introduced product is also a clear display of the listenlossless playback this year, vinyls have his- er’s preferences and identity. torically offered the highest audio quality “I think people want a legitimate totem to for consumers. CDs register snapshots of hold onto the things that they love. Of all sound at a certain rate, or “bits,” which are the formats that you can listen to music, the then kept as a digital file (see Figure 1). record is the best,” Johann said.

When CDs are read by a stereo system, the

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While the youth market may not influence overall sales to the expected extent, records are being adopted by boutiques and trendy stores for a good reason. In fact, those between the ages of 18 and 24 accounted for 16% of new vinyl buyers in 2018.

Urban Outfitters, a lifestyle retailer geared towards teenagers and young adults, is now one of the largest stockists of vinyl, which means that vinyl has more visibility than ever outside the boundaries of the traditional record store. As Bob Stanley wrote in the Guardian, “Old heads might be sniffy about the limited selection, but if you’re 14 years old and you pick up a Modern Lovers LP while buying a new pair of jeans, that has got to be healthy for the future of vinyl.”

Occasionally, new buyers purchase vinyl without possessing a turntable to listen to it. George Johann, owner and founder of Ithaca’s Angry Mom Records, believes that such purchases are motivated by the buyer’s appreciation for a record;s aesthetics. For young consumers who have limited experience with records, art and aesthetics may be

George Johann standing in Ithaca angry mom records

The Market Power of Nostalgia, Audiophiles, and Aesthetics

According to YouGov, a market research company, the largest age group of UK vinyl buyers is between the ages of 45 and 54, with those between the ages 18 and 24 actually the least likely group of buyers. In addition, research shows that the most popular music genre for vinyl is Classic Rock (‘60s-80’s), suggesting that a substantial portion of sales come from aging consumers re-establishing a connection with the music and format of their youth.

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Occasionally, new buyers purchase vinyl without possessing a turntable to listen to it. George Johann, owner and founder of Ithaca’s Angry Mom Records, believes that such purchases are motivated by the buyer’s appreciation for a record’s aesthetics.

ART & CULTURE

To understand vinyl’s comeback, it’s essential to determine the demographics of buyers. With records popping up in new retail spaces, such as trendy clothing stores like Urban Outfitters, it may seem as though a new wave of young consumers is driving vinyl demand.

However, research by the Recording Industry Association of America reveals that vinyl’s comeback is

due to those over 35 experiencing “midlife nostalgia.”

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their gateway into the vinyl market– a “I hate the grumpy old record store ‘knows promising trend for record manufacturers more than you’ trope, so I’m glad all of these and retailers. people are coming.”

Small Market Players: A Look into Ithaca’s Own Angry Mom Records

Despite Angry Mom’s strong local presence, online retailers continue to pose a threat.

“The bane of my existence, probably like everyone’s in the world now, is Amazon. You can’t compete. They have records at Target, and Barnes and Noble, and that’s part of why it’s hard for me to get stuff,” Johann said. “I guess in the long run it’s good because people are out and seeing records in multiple places so it is what it is.”

Located in the basement of Autumn Leaves Used Books in Ithaca Commons, Angry Mom Records has been selling both new and used records since 2009. EAven as an experienced vinyl retailer, George Johann finds it difficult to predict the future of the vinyl industry.

Despite purchasing restrictions instigated “Every year it gets a little better, with more by COVID-19, vinyl’s sales rose 28.7 persales and prices going up. Everyone in this cent between 2019 and 2020, according business is always worried about the bub- to the Recording Industry Association of ble that we’ve all been through with oth- America. Although the vinyl industry was er things,” Johann said. “We keep thinking able to withstand supply chain disruptions, that it’s going to pop, but then the bubble its future is not nearly as secure as demand gets bigger, so we’re going to keep riding it growth indicates. Due to the emergence of lossless audio streaming, vinyls will have to out.” offer significant aesthetic appeal to conMany record manufacturers are now fac- sumers to ensure record’s future success. ing significant supply chain issues in record production due to the boom in demand. Although the supply bottleneck is frustrating, smaller retailers like Angry Mom Records maintain stock of older records to mitigate supply chain risks.

“It’s just supply and demand. It’s sort of a good problem to have, but it’s frustrating when we’re used to being able to get what we call ‘evergreen’ titles that would sell every week for us, that we could recommend, that are just gone now. I don’t think [the problem is] going away any time soon,” Johann said.

As for the locals visiting the shop, Johann says that customers have become more diverse in recent years.

“When I first opened the store, it was mostly white, mostly male, mostly straight, lonely guys, so your typical record nerd. Now our customers are 50-50 split, male and female, and the age range is about 10-80, so it’s everybody right now,” Johann said.

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Source: Recording Industry Association of America

Not a Good Ad Campaign: Tiffany’s Repositioning Stumbles

LVMH President announces buyout of Tiffany’s

Written By Emily Xiao

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color for its jewelry boxes.

However, in 2021, shoppers care about more than history. Now, the advent of digital marketing, growing younger shopper segments, and the pervasiveness of influencer, celebrity, and social media culture in retail markets have pushed Tiffany’s to change management practices and reposition its brand. In January, luxury giant LVMH acquired Tiffany’s for $15.8 billion (discounted from an original ask price of $16.2 billion due to pandemic-related losses).

LVMH subsequently appointed Anthony Ledru as the brand’s new CEO. Beyond these organizational changes, Tiffany’s has issued a slew of new marketing campaigns targeting a younger demographic.

ART & CULTURE

walk into a Tiffany & Co. flagship store is a walk into tradition. Walls are lined with an iconic mainstay tint of Tiffany blue as shoppers search for sterling silver jewelry, diamond rings, or the iconic heart tag bracelet. Gift givers and self-buyers alike, longtime customers are typically affluent working adults or older. Ask any luxury connoisseur — Tiffany’s is a storied brand built on heritage. Founded in 1837

by Charles Lewis Tiffany, the brand gained notoriety in the 20th century with the creative direction of his son, Louis Comfort Tiffany. In 1961, the film Breakfast at Tiffany’s starring Audrey Hepburn brought the brand international acclaim, and in 1998, Tiffany’s trademarked its iconic blue

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In real time, Tiffany’s is experimenting with its brand to maintain relevance. One of its new successful campaigns features Beyoncé and Jay-Z, thus pandering to celebrity culture. “Ushering in a new brand identity, this campaign embodies the beauty of love through time and all its diverse facts, forging a new vision of love today,” according to a company statement. Here, the jeweler has smartly reinvigorated itself by employing some of entertainment and music’s biggest names while staying true to its history by retaining the traditional love story, albeit through a modern lens.

tions, while the latter is a trendier, younger audience. Even marketing itself is traditionally guarded. Luxury marketing is a high end, homogeneous process, where strategists are typically white and European.

In all, luxury is an exclusive market that is highly codified in both process and audience.

The growth of Gen Z, however, is altering the luxury marketing landscape. With a growing younger customer base and increasingly democratic access to information via the web, marketing is becoming more customer-centric; highly-regarded marketers hold less and less influence. Millennials and Gen Z will contribute to 130% of the luxury market’s growth between now and 2025, according to an estimate from Bain and Company. For Tiffany’s, understanding the desires of younger consumers is essential to capturing a share of this growth.

Other creative moves have been more controversial. Earlier this year, Tiffany’s released videos of young, edgy models with intentionally unstyled hair, with the bolded tagline Not your mother’s Tiffany.

Plastered around LA and NY, Not your mother’s Tiffany aimed to encapsulate Gen Z’s youth, edginess, and rebelliousness. The campaign is With a growing a retread of GM’s 1988 campaign: “this is not your father’s Oldsmoyounger custombile.” Known as a notorious flop, er base and increasGM’s campaign is more widely taught as a cautionary tale than an ingly democratic acinnovative marketing strategy. For cess to information via Tiffany’s to emulate GM was an the web, marketing is interesting creative choice in and of itself: according to mixed reception becoming more cusand backlash, both Tiffany’s traditomer-centric; hightional base and younger consumers were unimpressed by the initiative ly-regarded marketers to ditch their brand. As Tiffany’s hold less and less infinds itself mired with criticism, the fluence. brand needs to increase its audience awareness and focus its innovation in a clearer direction while uphold- These consumers are tech savvy and bound with internet spend. Online, ing its tried and true brand. they engage in informal activities, In traditional luxury buying, cus- with a great set of choices and tools tomers can be segmented into ei- to influence their spending decither “big jewelry purchasers” or sions. They tend to trust informa“modern self-purchase” categories. tion from the internet and social The first group tends to be an older networks, and they like to share clientele raised on Tiffany’s tradi- their views on brands without a di-

“

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rect company interface or involvement. Marketers need to adapt to the equal access, democratic forms of brand discussion and reviews.

For Tiffany’s, this means listening to consumer wants is vital; no longer can marketers recycle old advertising headlines.

Understanding what young buyers want is the next step for Tiffany’s.

Gen Z values perceived usefulness, humor, and fun in promotional marketing. On TikTok, for instance, brands play into Gen Z’s humor and wit by being active in viral video comment sections and by taking on casual internet colloquialisms.

Gen Z also values relatability, diversity, and ethics more than other demographics. Fashion brands foten leverage influencer and celebrity partnerships to cater directly to this audience. Even the most exclusive conglomerates pick models who are more representative of a diverse American population. If they don’t, consumers will run to the internet and social media, voicing their discontent and generating brand-disrupting noise until they do.

In the luxury space, there is a clear distinction between what’s worked for traditional brand loyalists and affluent older buyers and what younger segments look towards. For the self-motivated, up and coming buyers, brand values are important.

Brands need to show these values through convincing narratives and continual commitment rather than telling consumers what they’re getting. For marketers, there is a huge demand for diversity. With the web as a social networking platform, the transfer in power from sellers to consumers is disrupting traditional marketing processes. Overall, luxury brands like Tiffany’s need to accept the future of a customer-first reality.

Tiffany’s is seeing large manage-

Leading a new direction ment changes with the oversight of LVMH. Along with new CEO Ledru, Tiffany & Co. recently named Andrea Davey their first new CMO in five years. An even deeper demonstration of Tiffany’s commitment to refreshing the brand is their creative team changes. Although once highly exclusive, Tiffany’s is now opening its creative teams to students from underprivileged backgrounds.

Executive creative director Ruba Abu-Nimah unveiled this initiative at the Hyeres International Festival of Fashion and Photography. The use of young creative talent is uncommon in high-end jewelry, where creative processes value corporate structure and skills in a traditionally white, European space.

Overall, introducing young creatives is a step in the right direction towards improving diversity and innovation. In a digital world, however, consumers will act with or without company approval. To really succeed, Tiffany’s needs to not only put aside their siloed processes but also actively listen to consumer feedback.

Cheapening or deepening the brand?

A deeper look at the content of the campaign itself: Tiffany’s is telling rather than showing consumers they’ve changed. Not your mother’s Tiffany becomes a cop-out, an overdone phrase that comes across as arrogant instead of warm. Tiffany’s has shown a lack of self-awareness in seeking to advertise to younger customers without directly involving them or catering to their values.

Tiffany’s needs to take a truly bold stand by adapting, not abandoning tradition. In Tiffany’s lazy attempt to go from vintage to youth-friendly, they are caught between the past and present, alienating both older and younger segments.

Tiffany’s, tradition, and the future Not your mother’s Tiffany was just a slice of Tiffany’s new direction (or lack thereof ). There have been tangible losses of Tiffany tradition as well. Artist Stuart Semple is now selling the once trademarked Tiffany blue directly to consumers.

Tiffany & Co. itself has rebranded stores with yellow, ditching their own trademark. Challenging the commercialism of a once-coveted color shows how customer-centric and democratized retail has become. Most recently, Tiffany’s has unveiled a collaboration with skateboarding lifestyle brand Supreme that observers have called “desperate” and “cheap,” a poor fit with the brand’s high-class position.

While Tiffany’s is right in knowing that it can’t rely on tradition to maintain its sales, the company needs to improve its approach to innovation by involving the consumer in every part of the process.

Continuing to draw on the success of their campaigns with Beyoncé by infusing their strengths with modernity would be a strong strategic move. On the other hand, while customers are critical today, only time will tell if Tiffany’s is eroding its own brand equity or if it can overcome this initial resistance.

For now, the only way for Tiffany to follow through on its mission to rewrite history is to listen to its changing audience in a traditionally codified world.

ART & CULTURE

If Tiffany’s is seeking customer feedback, they should look first to their Not your mother’s Tiffany campaign. Traditional brand loyalists have dissed the ads, with Rachel ten Brink, an entrepreneur and named as part of Entrepreneur Magazines’ 100 Powerful Women of 2020, writing that “Awareness doesn’t equal relevance” in response to the ad campaign. Even to outsiders, Tiffany’s seems to be dismissing longtime customers. Moms said they felt unneeded as customers; older Tiffany clients expressed their disgust at being so explicitly reject-

ed. Young observers saw through the campaign as an attempt to pander to them and even recognized it as a clear attempt at segmenting demand.

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Q A

What makes Avalanche special?

In the earliest stages of the project, the breakthrough consensus protocol that powers Avalanche was the clear crown jewel. But in the time since, I’ve come to learn that my colleagues on the Ava Labs team are what makes the technology we’re building so special.

The protocol is still less than a year and a half old, so there’s still so much opportunity to improve the platform and further optimize performance with the Avalanche community through initiatives like core upgrades, new applications, and infrastructure. So, for as great as the technology underpinning Avalanche is today, the future is even brighter.

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Cornell Business Review

Aaron Buchwald Aaron Buchwald stopped in to discuss crypto trends, his experience developing Avalanche, and advice for young developers. Aaron is on the Platform team at AVA Labs and is the lead developer on the C-Chain.

AVA Labs is the developer of Avalanche, a smart contracts platform for decentralized finance applications. Aaron was recently interviewed on the Subnet Show, a podcast dedicated to exploring the Avalanche ecosystem.

Q A

assets, enabling more efficient, user-centric markets. This is the real dream of what Avalanche can be — take an underutilized market like making loans to farmers in Africa. There are microlending platforms like Kiva that provide loans to this massively underserved population of farmers that most of the global financial system won’t.

How did you get started at Ava Labs?

I started to get interested in research my freshman year at Cornell. After joining the Space Systems Design Studio with Professor Peck, I decided to focus my research in my field of study, computer science.

I explored the research of a wide range of professors, before reading an article about Ava Labs exiting stealth mode with deep roots in Cornell. A month or so later, Phillip Liu, the head of strategy for Ava Labs, sent an email to a club I was a member of as they were recruiting the early team. I threw my hat in the ring and haven’t looked back since.

A

The global stock market has a market cap of around $100 trillion dollars and total global assets are several times larger than that. Most of those assets are not very liquid and burdened with inefficiencies that mostly come down to old technology. Taking it a step further, many assets aren’t yet accessible to individuals around the world.

So, the idea here is simple. Create a platform that can support the digitization of the world’s

Now that’s one of my favorite examples, but the same is true of almost any underserved market.

Blockchains offer the best solution to create well-functioning markets for these places and better connect them to capital.

Q

Talking about switching costs: How do DeFi projects stay on top in such a highly competitive and technical space?

A

This is a good question because for a lot of DeFi projects the switching costs of moving your capital from one DeFi protocol to another is extremely

INTERVIEW

Q

John Wu stated that “Avalanche is focused on tokenizing and digitizing assets.” Can you help us understand what that means?

It’s not for a lack of opportunity or upside potential as these projects can have huge returns on investment because a little capital can go a long way, so it comes down to core technology limitations for both individual and institutional access. In this example, Avalanche can support tokenized loan products that can be bundled together into more diversified assets. There’s a real possibility that this technology can help catalyze investment here and have a massive, positive impact there.

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Blockchains offer the ability to design applications where there is no centralized service sending you a response, there’s just a verifiable application that is deployed to the chain with which users can interact. This is really a new paradigm that opens up applications where you can, for example, build decentralized exchanges that don’t require a central party like the NYSE or a broker like RobinHood. So, a huge part of the promise of blockchains is this possibility of disintermediation. I don’t know how this will play out, but I can certainly see dApps competing with some of these services as well as existing services trying to leverage dApps to improve their own offerings.

low, which is a large part of the reason that we’ve seen the emergence of a vibrant DeFi ecosystem with a huge amount of competition.

For example, we see many projects copy opensource protocols and attract capital by offering higher incentives than their competitors. This strategy has proven to work well in the shortterm, but in the longer term, the projects that deliver the best experience and attract the most volume have the best chance to retain the volume necessary for the fees from their platform to outweigh the native token incentives offered by newcomers to try and break into the market.

Q

How long do you see Bitcoin maintaining market dominance? Do you think Bitcoin has a role to play in the crypto market within the next decade?

A

Bitcoin was the first mover and brings a really interesting natural economic policy that is likely to play a continued role. Despite early goals as peer-to-peer cash, Bitcoin has now solidified a role as digital gold in today’s market due to its difficult to manipulate economic policy. Of course, like gold, this creates a double-edged reputation as a tool for hedging against macroeconomic conditions and a speculation-driven asset. So, it will always be in the eye of the beholder, rather than objectively valuable as we see with utility-driven tokens.

Q

How do you see the role of financial market makers in a world with decentralized payment systems?

A

It seems like you’re asking about a few different systems here. There’s payment processing systems, investment brokerages with their own settlement layers like Charles Schwab and Robinhood, market makers in various markets like Jane Street, and potentially Investment Banks as well.

When people ask me about the value of Web3, I typically try to explain it as a new model for building applications. The internet right now is built on a client-server model, where you have some application on your phone and it interacts with Google’s server, which sends you a response.

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Q

There’s a lot of talk about Proof of Work (PoW) vs. Proof of Stake (PoS). Do you see Proof of Stake becoming the standard verification for crypto assets going forward?

A

Absolutely. One technical correction here is that PoW and PoS are sybil control mechanisms to deter bad actors, as opposed to consensus protocols, which determine how the network validates transactions. So, they are only part of the story when it comes to securing blockchains.

For any type of distributed network, you want to have a way to ensure that nobody can exert a larger influence in the network than they should.

For example, if there’s an open network with 10 validators that each have an equal say in the network, then you need a way to prevent one of the validators from running 100 different nodes and being counted 100 times. The name sybil actually comes from a case of multiple personality disorder, so it’s essentially saying we need to handle the case that someone pretends to be more than they are. In the case of PoW, the amount of hashpower dedicated to the protocol is intended to be your weight in the network and in PoS, the amount of stake that you are willing to bond determines your weight in the network.

This is a common confusion largely because heaviest chain consensus is integrated so tightly with PoW and it is part of the consensus protocol itself. Bitcoin and Ethereum

use this approach, and because people are financially motivated to have a large weight in the network, they dedicate a huge amount of computing resources and it is extremely energy inefficient. One popular statistic is that the operation of the Bitcoin network currently takes up more energy than the entire country of Denmark. In contrast, PoS protocols are significantly more energy efficient and economical.

To answer your original question, I think PoS is going to see an increasing market share as most new chains are using it and even Ethereum is planning to transition to PoS.

Q

Do you have any advice for current students and entrepreneurs seeking to enter the crypto asset space?

A

I think the best way is to start entering the Discord communities of the projects that you’re interested in and trying to be a good member of the community by asking questions to learn about the broader space and the project specifically. There’s a huge diversity in experience level in these Discord communities and people dedicated to helping their communities, so this is an invaluable resource for anyone that wants to learn.

The one other piece of advice I have is a little more difficult to follow. Be careful. There are a ton of real applications and projects out there trying to change the world, but there’s also a ton of people looking to feed you a pile of garbage and take your money. A lot of the time these are easy to pick out and see that something is a little bit sketchy, but this is such an interesting space that sometimes when something seems too good to be true, it’s actually real.

INTERVIEW

I recommend thinking critically and starting out in the communities of more reliable projects that have been around for a while and proven themselves to some degree as places to start learning. Once you have a good foundation, I’d recommend diving into the Discords of smaller projects that you’re interested in.

And just to plug Avalanche and the team a little bit, check out the Avalanche Discord, it’s a fantastic community and there are a ton of Ava Labs team members that provide amazing support to newcomers wanting to learn more.

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