Hi, I’m Azeem Azhar. I’m exploring how our societies and political economy will change under the force of rapidly accelerating technology and other trends. Enjoy Exponential View with a comfy chair and a cup of coffee (or tea)!
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Dept of the near future
💯 AI transformation in enterprise will take years; ‘even at the large software companies, like Google and Baidu, it took years to transform the companies to embrace AI,’ says Andrew Ng in our conversation.
⚗️ Rob Carlson of Bioeconomy Capital explains how the bioeconomy which can meet our need for pharmaceuticals, materials and lubricants without relying on oil.
Companies [like] Arzeda, Synthace, and Zymergen have already demonstrated that they can design, construct, and optimize new metabolic pathways to directly manufacture any molecule derived from a barrel of oil. Again, at least 17 percent, and possibly as much as 25 percent, of US fine chemicals revenues are already generated by products of biotechnology
Bio-chemicals have a much larger share of the US chemical markets that I had imagined, but there is still a long way to go. Ironically, this troubled planned IPO of Saudi Aramco may truly call the peak of ‘black gold’. (I’ll be discussing the challenges of decarbonisation with energy historian Vaclav Smil on the Exponential View podcast in a few weeks.)
🙊 Chinese internet censorship is infamous, but there are a lot of misperceptions in the West about exactly how it works. Lotus Ruan of Citizen Lab breaks down exactly what the regulations are, how they are implemented, and how effective they really are. Of course, official censorship isn’t the only form of silencing at work online. Self-censorship by companies wary of offending China is increasingly common, even amongst the world’s most powerful companies. Apple, for example, has reportedly removed an emoji of the Taiwanese flag for iPhone users in Hong Kong. (See also, did Jack Ma really step down, or was he pushed by the Chinese government?)
🚸 Alison Gopnik: Children are the ultimate learning machines. What can they teach us about building AI?
🔥 Climate breakdown: 408.41ppm | 3,876 days
Each week, we’re going to remind you of the CO2 levels in the atmosphere and the number of days until reaching the 450ppm threshold.
The latest measurement (as of October 9): 408.41ppm; October 3, 2018: 405.62ppm; 25 years ago: 360ppm; 250 years ago, est: 250ppm. Share this reminder with your community by forwarding this email or tweeting this.
🚗 The Tesla Model 3 had a stellar year in the US in 2018, becoming the best-selling luxury car in the country and the best-selling car of any type in terms of revenue. Sales figures are estimated to reach around 43,000 in the US, blowing away any other small or mid-size luxury car.
Could giving legal personhood to nature help tackle climate change?
Department of renting
How real is the rental economy? Renting homes, cars, dresses, appliances, even dogs, has appeared in the public consciousness under the horrible moniker of the ‘sharing economy.’ The ‘sharing economy’ gave us high-octane, irresponsible firms like the Kalanick-era Uber, and the Adam Neumann’s WeWork, while being nothing about sharing and everything about regulatory arbitrage, hubris, a land grab and caustic culture.
Labels aside, the promise of the rental economy is, I believe, four-fold:
- More effective resource usage that is more sustainable. In theory, a car shared amongst dozens of families has a lower overall footprint than each family buying their own car. The actual effects are complicated. Bike rental schemes may be more sustainable than car ownership. Car sharing schemes might, in the short run, be less effective depending on the extent to which car sharing displaces public transport (rather than car ownership) and the extent to which shared cars are dependent on downstream carbon-based energy. While the electrical grid is still predominantly carbon-powered, these two effects might actually increase CO2 output per passenger-mile. (See Jung & Koo’s discussion here.)
- Renting provides access to goods and services otherwise unaffordable. Those without the luxury to pay £17,201 to own a Birkin, can rent one for €250 for a week.
- It enables entrepreneurial opportunities. Those willing to risk some capital to acquire an asset which they can sweat. I experienced this when launching a mobile information service in India in 2006. At the time, Indian mobile penetration was below 15 percent, concentrated in the cities. Rural villagers might have one inhabitant with a phone, who could make additional income by renting the phone to their neighbours.
- Consumer capitalism has increased our choices, but during this time, our social capital, especially in the US, has not increased. Perhaps it isn’t too fanciful to suggest that a move to a rental economy with more equitable access to goods and services could strengthen social capital.
Like many ideas, the rental economy works beautifully in theory.
How is it shaping out in practice?
The US Chamber of Commerce put out a brief note on the rental economy suggesting that ‘millennials and Gen Z are willing to rent rather than buy’ everything from clothes to furniture. ‘Generation Z is not going to have the expectation of buying, owning, moving, selling, and storing furniture every time they move and go between different jobs or different life moments,’ according to Michael Barlow, CEO of a ‘furniture-as-a-service’ start-up.
My buddy, Joe Fernandez, runs Joymode, a rental economy startup. He tells me that about 60 percent of his customers make $100k per annum (putting them in the top-third income bracket in the US) and that on average they spend $418 a year to get to access about $5,000 worth of stuff. Cooking accoutrements, like sous-vide cookers and barbecues do very well, as do vacuum cleaners (presumably to clean up after a char-grilled ribfest.)
Archcapitalists at the private equity firm, KKR, doyen of the world’s largest leveraged buyouts, have put together a detailed peek into the dynamics of the rental economy in The New Consumer. According to KKR, the Global Financial Crisis precipitated some of the economic conditions for the rental economy. The smart-phone was the technological enabler. And entrepreneurs responded to the new opportunity.
All is not rosy. The typical renter is not as upscale as those using Joymode. This is particularly true when we look at the dynamics of the biggest thing that people rent: their homes.
Since 2005, five million more American households rent rather than own, driven in part by a ‘new segment of high-income renters [that has] proliferated since the financial crisis.’
The average American renter has an annual post-tax income of $43k per annum, which is insufficient to cover their annual expenses of around $44k. A typical homeowner makes $32k per annum more, and is left with a surplus approaching $6k each year. Accentuating this divide are rental costs which are rising faster than wages. The median net worth of renting households is in a funk at $5k.
One of the growing area of the rental economy is the apparel industry. The number of times a piece of clothing is worn before it ends up in a dump has been further declining globally, led by China. Yet, at the same time, consumers are increasingly receptive to supporting sustainable fashion brands, Millennials in particular.
Clothing items high in value, low in usage, are driving the penetration. The pioneer in the market, Rent the Runway, for a long time focused their activity around special events, such as weddings; more recently, the company has advanced into a long-believed impervious market of day-to-day clothing. Incumbents are impacted by the shift to rental in a number of ways. First, partnering with rental companies such as Rent the Runway has been an opportunity for high-end brands to build brand affinity with younger customers who can’t afford a direct purchase, yet. Second, existing brands will likely start rental services of their own. For instance, Rebag, the luxury handbag resale company, launched a program which allows customers to exchange their new handbag for credit that allows them to buy another bag.
- Over the past five years, the annual growth in consumer spending on ridesharing in the US exceeded all other categories of transportation, including car leasing, rental and buying used. Ridesharing has directly impacted the slowdown in car sales and the number of people opting to get a drivers license. But the sector faces its challenges: regulation has been a globally persistent one. The second is passenger inelasticity: the University of Chicago study has found that for every 10 percent increase in ridesharing fares, demand falls by around 5 percent.
What might get in the way of getting the rental economy to work
One question is whether the rental economy—despite the good reasons I outlined above—will become a permanent feature of our economies. And whether, if it does, it does so in an equitable, non-exploitative way.
In order to work, these services need to have core profitability rather than relying on regulatory arbitrage (as Uber and other ridesharing firms have done in treating drivers as arms-length contractors) or other financial wheezes (entire WeWork).
We should be level-headed about looking at the failures of particular firms in the industry. Over capitalisation and premature scaling is a function of execution or simply market timing, not the underlying value proposition. HelloBike has proved there is demand for bike sharing in China, even as Ofo and Xiaming took huge writedowns. (Kozmo’s failure in 2001 did not mark the death of home food delivery.)
We’ll need to make sure we don’t create an unpleasant rentier capitalism. Will the platforms that mediate between providers of assets and consumers end up being minimonopolies as they win market share? Could the successful ones exploit data network effects to hurt competition?
We’ll have to guard against unexpected economic and fiscal effects. Joe Fernandez tells me that his renters defrayed nearly $45m in purchasing costs. So, manufacturers and retailers could be hit by lower consumer sales. Different tax regimes — and the balance between value-added and corporate taxes — will be affected in unpredictable ways. We also need to avoid appalling regulatory capture, such as the recidivist Airbnb tax-break doled out to the digiscenti by the British government in 2016 that was supposed to encourage the ‘sharing’ economy.
Ownership also confers status. How will we encourage people to give up the status signalling of owning ten Birkins? For some categories, this will be easier than others. How do we get people to change their values? When I used to work with Blocket, Sweden’s leading second-hand platform, I learnt from my colleagues that many Swedes saw buying from Blocket signalling an eco-frugality of which they were proud. Could renting, with its lower environmental footprint and greater-ease-of-accounting, play to an increasing concern for living within one’s ecological boundaries?
Tackling these might foment a rental future both desirable and plausible.
Other consumer trends:
- Andreessen Horowitz’s Li Jin argues that unlike the homogenising gig economy, the ‘passion economy’ provides talented individuals with the opportunity to monetise their individual skills: ‘It’s akin to the dynamic between Amazon—the standardized, mass-produced monolith—and the indie-focused Shopify, which allows users to form direct relationships with customers. That shift is already evident in marketplaces for physical products; it’s now extending into services.’
- The nature of consumption is changing. As fast fashion giant Forever 21 files for bankruptcy.
Short morsels to appear smart at dinner parties
🎮 Contrary to popular perceptions, video games don’t have to be isolating. They can be a way of bringing young people together.
The US economy is continuing to grow while consuming fewer resources. US consumption of steel, copper, fertiliser, timber and paper have been decreasing since 1970. (Read my take on dematerialization from last week, here.)
🤑 Bill Gates gave away $35 billion this year, and still ended the year $16 billion richer thanks to an aggressive investment strategy.
🔴 With its recent anniversary, the Chinese Communist Party is officially older than the Soviet Union’s Communist Party ever was. Fundamental tensions within the CCP may contain the seeds of its own undoing, however. Interesting insights.
🎼 Streaming platforms are changing the nature of music. Shorter songs, catchier refrains, earlier choruses.
Deutsche Bank has valued Google Cloud at $225 billion, more than double IBM’s market cap.
🦇 It turns out that bats argue a lot, which will come as no surprise to anyone who has been near a bat colony around dusk. Whales, meanwhile, whisper to their young when predators are around.
Blockchain is hitting the low end of the hype cycle. Meanwhile, transactions using blockchain apps are down by almost 40 percent, while the number of apps launching in Q3 is less than in a single month in the first half of 2019.
💆 College students who go off Facebook for a week report being less depressed.
🏷️ Figuring out where something is ‘made’ is really complicated.
Cows painted like zebras are less likely to be bitten by flies. Also, a family of endangered pigs has been observed using tools.
I’ve been watching Facebook’s Libra coalition run into trouble as other members of the governing body (like eBay, Paypal, Visa and Mastercard) abandon the project. One of EV’s researchers, Elise Thomas, has done some exceptional work unpicking the ties behind this governance group. You can read it in the community section below.
Back in June at the time of the Libra launch announcements, I wrote a briefing for premium subscribers to this wondermissive.
It was an analysis of the project and the ways in which I thought it would struggle. It was quite prescient, and remains relevant, so I’ve opened it up for all readers to access: Can Libra Succeed? (Premium membership is available here.)
♎️ Azeem (your friendly Libran!)
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What you are up to—notes from EV readers
Congratulations to Martha Lane Fox for being named the most influential woman in the UK digital scene in the last 25 years! Martha guest-edited EV two years ago; read it here.
Fang Yuan is running a social media campaign #TreeTimeChallenge to raise money for the protection of the Amazon rainforest.
Mark Hoban: Towards an AI-powered UK.
Luukas Ilves and 33 Estonian tech companies launched a pledge at the Tallinn Digital Summit to brainstorm their support for the environmental causes.
Farhan Lalji’s podcast on the future of music.
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