Forward to 2017
2016 is coming to its conclusion. For many, it can’t come fast enough. The past year brought many changes to our global environment. Winds of nationalism and populism swept across the developed world. The IPO market for technology companies stalled, despite the fervor that remained in the private financing markets and the seeming strength of offerings from Nutanix and Twilio. And climate deniers took control of the most important environmental control organizations in the world.
Simultaneously, we saw a number of remarkable changes. Assisted driving became a reality for Tesla owners around the country – bringing us one-step closer to an autonomous future. AWS’ explosive growth has convinced everyone that the infrastructure for the internet could soon resemble the utility infrastructure provided by electric companies around the globe. And Netflix continued to demonstrate that a digital disrupter can quickly turn into the machine that gobbles the entire ecosystem.
As 2016 leaves us behind, the question is “what’s on the horizon?” In the spirit of going on record, here are five of my predictions for the New Year.
Prediction I: Acquisitions continue, but none will save them
In 2016, we have seen a flurry of acquisitive activity by large organizations founded in the industrial era. Seemingly, these industrial giants got wise to the fact that digital disrupters are upending their businesses. Their reaction, buy the businesses that threaten their core.
General Motors spent a billion dollars on Cruise Automation to ingest their expertise surrounding driverless cars. Volkswagen recently bought PayByPhone to turn itself into a mobility services organization. Unilever spent a billion dollars on Dollar Shave Club. Walmart spent more than 3 billion dollars on Jet.com.
The unfortunate reality is that you can’t just buy yourself a transformation. It requires courageous leadership over a sustained number of years. As Aaron, Rob, and I argued in the November HBR magazine, transformation requires a bold bet on new organizational structures, new distribution channels, new ecosystems, and new internal capabilities. Just buying a highly valued startup delivers none of this. Only companies like Microsoft, General Electric, and Kaiser Permanente, that have been making continuous (and bold) investments in moving to this new digital environment are going to see their acquisitive activity pay off.
But… we’ll still see this type of M&A happen in the technology ecosystem. Perhaps at an even faster rate.
Prediction II: The trough of disillusionment arrives for blockchain
Don’t get me wrong. I believe it when people tell me that blockchain is going to solve many of the problems inherent in the architecture of the modern internet. Certainly, the people telling me this are much smarter than I am. What’s more, the great use cases I’ve seen for blockchain (M2M payments, etc.) are truly phenomenal improvements on the complexity of what exists today.
But we have very clearly been early in the Hype-cycle here. 3 years ago, VCs around the globe were frenzying over any businesses in the bitcoin or blockchain ecosystems. Forward thinking companies like banks started truly playing with blockchain 2 years ago. Everyone else hopped on board in 2016. My guess is that few large institutions find real roles for blockchain in the coming years. 90% of the business proposals I see with blockchain in the architecture are unnecessarily complex because of it. Many foundational issues need to be solved to see blockchain solutions rolled out at scale.
My intuition (though I could eat shoe here) is that people get wise to this in 2017. Businesses like Coinbase, 21, and Chain will continue to make headway solving real problems to prepare the world for a blockchain future. All the while, my guess is that gimmicky apps on blockchain will lose their appeal as people wait for solutions to truly deliver on blockchain’s potential.
Prediction III: Capitalism fights climate change
The end of 2016 was bad for investors in sustainability. (It was also bad for any human being that believes in the amazing predictive powers of science).
Invariably, we can bet on a 2017 that brings reduced subsidies for green technologies. Fortunately, the cost of photovoltaics, the spread of electric vehicles, and the advancements made in sustainable agriculture are already driving us very close to a cost competitive future for green business. With bold bets not just from the likes of Elon Musk, but also from return driven investors like Warren Buffett, I can only imagine that we continue to see investors invest to roll out green infrastructure.
Despite the best efforts of a climate denying set of bureaucrats, I see increased PV adoption, increased EV adoption, and lower dependence on coal and oil coming from the US in 2017. Green isn’t just the business to be in for the future, it’s good business to be in now.
Prediction IV: Theranos finds friends in low places
We spent a lot of time this year talking about Theranos. The former darling of the health-tech universe dropped low this year. It’s unclear whether the company will even survive 2017. My guess is that Theranos isn’t alone, however.
The beauty of reporting within public companies is that it forces light to shine on even the ugliest problems an organization faces. As any manager of a public company can attest – the realities associated with this attention can be a very challenging thing to deal with (hence the disposition to stay private as long as possible). Unfortunately, far too many Silicon Valley companies have avoided this skepticism for far too long. Should we find ourselves in an environment where our markets turn far more illiquid quickly (following the beginning of a trade-war, a major terrorist act, the dissolution of the European Union, etc.), it is critical that businesses be able to operate profitably or raise debt / equity from those other than the VCs in midst of fervor.
My guess is that not all of our unicorns are prepared for such an event – and that will cause more of them to find themselves in the company of Theranos.
Prediction IV: People get wise on India
For years, BRIC was the talk of the town: Brazil, Russia, India, and China.
China was the focus of the conversation. With annual GDP growth of 8% or more, its rise to global significance shocked the world. Its strong home-bias gave rise to a generation of internet companies that can compete with even the most well established American brands. Alibaba, Weibo, and Tencent are enormous global businesses. Unfortunately, China has a number of demographic problems that simply won’t go away. It’s population is aging, slowing in growth, and skewed male (meaning that it will invariably start shrinking unless there is a dramatic reversal in children per couple). The legacy of the “One Child” policy doesn’t look great for a country trying to maintain poll position as the next dominant world power.
Meanwhile, Brazil and Russia have both benefited from enormous growth out of their resource rich environments. Unfortunately, Brazil’s inability to deliver sustained development for a breadth of its population has left its government somewhat unstable. Simultaneously, Russia’s most valuable asset (Oil) is becoming less significant to a world of buyers within the developed world. While there is certainly growth on the horizon, I’m not certain I’d double down on either.
We’re left with India. India is expected to add more than 400M people to its population in the next 34 years (more people than the US is expected to have in total in 2050). It has a great higher education infrastructure. It has a massive amount of expertise in information technology. It continues to see strong foreign investment in the country (though it could be better). If India’s governmental institutions can start to address some of the economy’s more foundational problems (availability of electricity, ease of licensing and municipal dealing, etc.) then India is poised to show some phenomenal growth through the first half of the 21st century.
I think people will get wise to this in 2017.