6 minute read
Introduction: Heartcore Consumer Technology Trends 2021
Vladimir Ilyich Ulyanov (Lenin)
Advertisement
What a difference a year makes.
We published the previous (and first) edition of this report in February 2020. A short year later, our lives have been turned upside down and the world feels like a different place. Yet at the same time, our conclusions from lsat year feel more relevant than ever. The timelines have however been compressed way beyond our wildest expectations.
Covid-19 has forced ALL of us to experiment with new things.
As William Gibson put it, "the future is already here, it's just not evenly distributed. Being early technology adopters, it's safe to assume that all the things pictured are not new to the readers of this report. Yet the important thing is that for 80%+ of the population, these were entirely new forced experiments.
Covid-19 pushed us across the “online adoption chasm”.
Source: Wikipedia, Heartcore
In the 1960's Everett Rogers posited that the diffusion of any innovation followed an "S" curve, spreading through the population. Geoffrey Moore late theorized that for an innovation to go "all the way", it needed to hit a crucial inflexion point. It had to "cross the chasm" between the early adopters and the early majority. When ~20% of the population are won over. From online commerce to telemedicine to digital learning: we believe that Covid-19 has made us cross the "Chasm".
Case in point: seniors.
We often forget that over 60% of people aged 55 and above still don't spend any money online! We've seen a particularly large uptick in online shopping among that demographics during the pandemic. As offline shops had to close during lockdowns, older people were forced to dabble with online alternatives. many of them will not go back to their old ways of shopping.
Change in the number of Europeans that bought something Online in 2020:
Adults 18-55| +4%
Adults 55-64| +13%
Adults 65-74| +14%
Covid-19 mostly accelerated preexisting trends.
Covid-19 has been a tailwind to most consumer technology markets that gained market share against the offline world and has mostly accelerated existing trends. This is precisely because "the future was already here", just not evenly distributed among the population. These are secular trends that fully unfold over decades.
Existing Trends, Accelerated: Positive Impact
Online Commerce, Food & Grocery delivery, Remote working, Digital entertainment, Online learning, Online Communications, Digital Health, Home Fitness
Existing Trends, Accelerated: Negative Impact
"The Offline World"-- Food, entertainment, workplace, healthcare, etc.
New Trends: Positive Impact
Rise of Personal Vehicles
New Trends: Negative Impact
Collapse of international travel
Remote working could be the shift with the most profound implications.
The downstream implications of this transformational shift in society are far reaching. They will manifest over decades and will impact several consumer categories. Should only 30% of the population start to regularly work from home, this would meaningfully change the way they eat, move, dress, socialize...and perhaps where they choose to live.
Consumers altered their behavior during the pandemic.
It's unclear how much the consumer behavior shifts we have witnessed will stick when the pandemic is over. Most of the shifts have been along 2 main axes: an increase in risk aversion & anxiety, and a reshuffling of consumers' priorities.
Risk Aversion & Anxiety: Existing Trends, Accelerated
Anxiety Disorders (covered in Heartcore's Consumer Technology Trends Report #1)
Preference for trusted brands
Risk Aversion & Anxiety: New Trends
Price Sensitivity & trading down, Focus on safety & hygiene, Larger baskets, lower frequency, Larger baskets, lower frequency, Social Distancing, Reduction in discretionary spending, Tail risk appreciation, Saving & investing
Reshuffling of Priorities: Existing Trends, Accelerated
Increased shift towards sustainability (covered in Heartcore's Consumer Technology Trends Report #1)
Reshuffling of Priorities: New Trends
Shift away from cities, Work-Life Balance re-imagined, "Hygge"
Brands are part of the broader conversation – whether they like it or not.
From #BlackLivesMatter to #TransRightsAreHumanRights 2020 was a year during which consumers took to the streets (and keyboards) to protest and express their beliefs. Online activism forces all companies to express their own values--and to sometimes weather the storm.
Brands with a genuine purpose aligned with the new social movements will benefit. Brands that try to opt out may will find: they can't.
The world is deinstitutionalizing in front of us.
From religion, politics, governments, and business, large institutions established over thousands of years are being challenged. Consumers are openly resisting against established authorities. Technology and the internet are enabling new decentralized alternatives to the top-down institutions we're taking for granted. What today feels grassroots may well become mainstream in 20 years. This is what the internet was always about: putting power into the hands of the end-user, the consumers.
It’s been a phenomenal year for Consumer Tech.
Stock prices of listed consumer technologies companies have dramatically increased over the past 12 months as most of them massively benefitted from the pandemic. This appetite from public investors prompted many high-profile private consumer technology companies to go public.
Partying like it’s 1999?
Concerns are easy to understand judging by historical standards, valuations of technology companies--public and private-- are certainly high. The PE ratio of the NASDAQ Composite Index is approaching 1999 highs.
NASDAQ Composite Index historical PE Ratio (x)
1999: 81x | 2020 72x
But this time the internet is the real deal.
Valuations are soaring like it's '99, and some pockets of the market undeniably appear to be in bubble territory. But this time the impact of the internet is real and has been dramatically accelerated by the pandemic. In 1999, Tech was a very small and unprofitable part of the economy--this is not the case anymore.
And monetary conditions are unprecedented
Valuation multiples are directly correlated to interest rates. When interest rates are zero or negative, the value of future cash flows is huge. We have been going through a prolonged period of extraordinarily accommodating monetary conditions, further accelerated by the pandemic. Just because 100x revenues multiples sounded crazy 10 years ago doesn't mean it is crazy today! There's a rational argument behind multiples expansion, particularly for high growth technology companies with backdated cash flows.
There's still a lot left to eat!
The internet is 25-years-old. Despite most people being online, most of their money isn't. In Europe, online retail sales only account for 7% of total consumer spending (vs. 20% in China). In the grand scheme of things, we're still at the very beginning of a massive secular trend. As entire consumer spend categories previously untouched by the internet start to "go-online", we believe that the magnitude of the shift over the next 10 years will be larger than over the past 25 years.
