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Traditional industries don’t see disruption coming

There are many well-know tech predictions that turned out to be completely wrong, and over the past week I came across a couple of new ones that (I think) totally miss their mark.

First a few of the old ones to have a good laugh:
– “I think there is a world market for maybe five computers.” Thomas Watson, chairman of IBM, 1943
– “This ‘telephone’ has too many shortcomings to be seriously considered as a means of communication.” Western Union internal memo, 1876.
– “There is practically no chance communications space satellites will be used to provide better telephone, telegraph, television or radio service inside the United States.” T.A.M. Craven, Federal Communications Commission commissioner, 1961

What they have in common is that these statements were made by people that work in the industries they make predictions about. They all fail to see that industries constantly change and that these changes also apply to their own industry. They are probably surrounded by people who don’t see these changes either, or who don’t want to see them because they can cost them their jobs.

My job consists of spotting trends and disruptive change before others and by placing bets (=making investments) based on that. I am certainly not always right and I am often too early, but I feel I have a better helicopter view of certain industries than some of the CEOs running the leading companies in those industries. Often when I read their interviews I wonder if they really live in the same world as I do. This week I read 3 articles that I totally disagreed with and that may eventually be added to the list of disastrous tech predictions.

First one article about the hotel industry: Hilton CEO Christopher Nassetta said “I strongly do not believe that they (AirBnB) are a major threat to the core value proposition we have.” He is confident that AirBnB is not stealing his hotel guests. Right, maybe not many yet, but given that AirBnB has far more rooms than Hilton, that will likely change soon.

I have stayed in AirBnB’s over the past years instead of staying in luxury hotels. And given that AirBnB is now focusing on the business market as well, Hilton could be in for a surprise. Mr. Nassetta stated that Airbnb cannot match the amenities that Hilton hotel rooms come with, so business travelers won’t stay there. If that’s really the main differentiator (it’s not, AirBnB has better choice, is often much cheaper, and has better facilities such as kitchens and laundry) that’s easy to solve. In China the first AirBnB clones with personal concierges and chefs have launched already, I am sure the US will see this soon as well. The hotel industry won’t change overnight, but it’s a process that is unstoppable. Good luck competing Hilton!

Second, the remittance industry. MoneyGram, a huge global remittance company, doesn’t see Bitcoin as a threat. Peter Ohser, the executive vice president of business development feels digital currency doesn’t pose any threat or solve pressing problems. What? Does he not talk to his customers? Does he not follow what’s happening in the real world outside of MoneyGram and Western Union?

He believes existing payment behaviors are too entrenched, and that bitcoin is unlikely to offer enough utility, because people trust paper more than data and that behavior is not going to change (my emphasis). Especially that last sentence makes clear that he is out of sync with the real world. It reminds me of Kodak, that did not believe 15 years ago that people would stop using photo cameras with film. Well, I don’t think my kids even know what paper photos look like. Disruption happens fast Mr. Ohser. Good luck competing MoneyGram!

General Motors
Third, the car industry. I started my career at Daimler-Benz (now just called Daimler). I loved the company and did not believe it would ever lose its place as one of the top companies in the world. So far they haven’t and I still like the brand, but given how slow they are with implementing new technologies I wonder if they won’t lose their place to Google, Apple or companies like Tesla. I was in a Mercedes showroom last month, and although I loved the models I would not consider buying one of their cars anymore until they would have a pure electric car with a range like Tesla’s.

Bob Lutz, former vice chairman of GM, wrote a column for Road and Track with the title ‘Is Tesla Doomed‘? It is clear that he does not see what differentiates Tesla from the traditional car companies and he gives Elon Musk some fatherly advice: Cut costs and build a small car with a hybrid drivetrain. I had to laugh at that. Because of its current investments in the Gigafactory and in the Model 3, Tesla will eventually print money. But if they would cut back costs now they would never be able to get there. The idea for a hybrid drivetrain is ridiculous, Tesla sets itself apart with its electric-only engines with a great driving range.

Next to that, Mr. Lutz compares Tesla’s showroom strategy to that of BMW in the 1970s, but totally misses that you can’t buy Tesla cars in a showroom and drive away (you order them and wait 2-3 months, or longer, so there are no inventories).

In a few hours Tesla will publish its Q3 results and they will likely show bigger losses. Not sure how the stock price will react (I believe investors expect it and it’s reflected in the current price), but I believe these losses are necessary for huge profits a few years from now. My biggest concern is that they can’t scale up production, but maybe that is something where the traditional players can help Tesla: as their future car parts suppliers! Then Tesla can focus on its software, R&D and design, just like Apple does (they don’t produce their own products either). I am long Tesla and fully believe in Elon Musk. Good luck competing General Motors!

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