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2021 Predictions – Bubble burst and Europe Digital Sovereignty

Nine predictions for 2021 from tech to finance. #1 the big tech/SPAC/bitcoin bubble unwinds.

After a momentous 2020, 2021 will represent a pullback in many dimensions such as tech valuations, cloud/eCommerce/telework penetration, and Asian vs. Europe/USA growth. Not because the trends have reverted, but rather because 2020 pushed them forward so dramatically that they will revert slightly to the trend line. Simultaneously, other areas like COVID, Big Tech regulatory action, Cyber, and Europe’s role will see a significant change. Finally, we will have to wait another year for the next iPhone moment and substantive action on our time’s problems.

Three trends will pull back after accelerating in 2020. Not because the underlying trend has stopped, but instead because COVID accelerated them far beyond the trendline.

  1. The Big Bubble unwinds. Tech markets, SPACs, and bitcoin are all seeing unparalleled bull markets. The underlying thesis is very similar for all. The government is printing money like crazy and driving interest rates to zero. Investors need a safe asset against inflation with good returns. Tech is the future, so tech is safe at any price. It also appreciates double digits, so it is too good an investment to pass on. We have seen this story before: real estate (several times), tech (2001), synthetic CDOs (2008), investment trusts (1929), portfolio insurance (1989), Nifty Fifty (the early 1970s), Tulips (the 1630s). The outcome is always the same. Once appreciation stops, investors get second thoughts and start selling. Once prices fall, the asset class is not safe, so the whole investment thesis collapses. Tech, especially SaaS, is undoubtedly very valuable. However, nothing is worth buying at any price. CISCO went public in 1990 at a $224 million valuation. With the internet, it became clear it was going to be a lot more valuable. Markets took it to over $500 billion in 2001, an x2000. Now, 20 years later, it is worth ~$200 billion, an x1000. CISCO was much more valuable, just not that last x2 valuable (small detail for the people who lost 80% of their investments from 2000 to 2002).
  2. Cloud, eCommerce, and telework stall. COVID has turbocharged cloud, eCommerce, and Telework. As things return to normal, there will be a slight pullback in 2021 vs. 2020. Still, the genie is out of the bottle, and we can expect tremendous growth over the next decade, just not next year.
  3. The West grows faster than Asia. Europe and the US have done a terrible job of controlling the pandemic when compared to Asia. Consequently, they have had significant GDP declines. The flip side is that in 2021 growth will seem faster in Europe and the US vs. Asia as they go back to normal. It is a blip. Asia will continue to outperform for the rest of the decade.

Other changes have started in 2020 and will shape 2021, transforming how we live and see the world.

  1. COVID goes away. With vaccines available, COVID will go away in 2021. Things will return to normal quickly. No one was wearing a mask or social distancing in 1920. No one will, at the end of 2021, with the pandemic under control.
  2. Big Tech on the back foot strategically. Big Tech’s reckoning has started. It will take several years, but the stage is set. Regulation and anti-trust action will level the playing field. No single industry or group of companies can be allowed to dominate the world. Governments have managed to avoid it since the railroad robber barons in the 1880s. Big Tech will not be any different. It is still difficult to picture a world in which Big Tech won’t control everything, but it is a matter of time.
  3. Cyber is considered weapons-grade serious. The US government hack through Solar Winds is the equivalent of a digital Pearl Harbor. We can expect a severe reaction across the world. Cyber is the new equivalent of panzer warfare and needs to be taken seriously at the highest government levels.
  4. Europe finds its footing. With Brexit behind it, we can expect Europe to regain the initiative. France and Germany seem aligned to push the union forward. The Digital Markets and Services Acts are great places to start, with strong obligations to create a level playing field in the digital domain. Regaining digital sovereignty, rekindling economic opportunity, and managing the migration crisis should be the priorities.

Two of the things I would very much like to happen won’t happen for another year.

  1. No iPhone moment. Since the tenth anniversary of the iPhone, pundits have been waiting for the next iPhone moment in tech. The next change of platform. Is it AR glasses? Ready Player One-style VR? Apple’s autonomous car? Quantum computing? Cryptokittens? It will happen in the 2020s, just not in 2021. I am intrigued to see what that turns out to be.
  2. No substantive action on climate change, inequality, or cloud democracy. The clock is ticking, but acting is too complicated. Only a real crisis will put our most significant challenges at the center. COVID has shown us that we can tackle them, but trying to play the ostrich and see if they disappear by themselves is too appealing.
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Roblox IPO – Not for noobs

You might not know Roblox, but most 8 to 16-year-olds do. More than 30 million of them log in daily, about 150 million monthly, more than Minecraft or Fortnite. The Roblox S1 reveals a surprisingly complex company, with revenue recognized over two years, and the Apple/Google tax representing its biggest cost category. Can Roblox grow its users substantially tapping the 24+ segment and APAC? Can it achieve tech style profitability even with the robber-barons controlling the railroads? That will determine if the right price is $15 or $100 per share.

What is Roblox?

Roblox is a unique gaming company. It is not a publisher like Activision Blizzard or Electronic Arts because it has only one title, the namesake Roblox which is not a game is more of a platform. However, it is not a platform like Unity, which is targeted at hard-core developers and is behind many mobile and PC games. It is not precisely like Epic Games, which combines platform (Unreal Engine) and game (Fortnite). However, lately, Epic has been trying to turn Fortnite into a kind of user-generated Roblox. It has similarity to Minecraft, especially around customization and user-generated content, but goes far beyond.

According to their S1, Roblox is a platform in the emerging “human co-experience” category, centered around user-generated content, that draws inspiration from gaming, entertainment, social media, and toys, which “some refer to our category as the metaverse.” Having watched my daughters play Roblox assiduously, I agree with their definition (and my daughters do too).

Roblox is a two-sided platform between creators (of games, events, social media, objects, and much more) and gamers who enjoy that content. The Robox platform’s magic is that it is low-code to start (e.g., my ten-year-old has created a zombie smashing game that my five-year-old plays), but can be extended and built into a full-fledged game (e.g., Bloxburg, Adoptme, Jailbreak). Players can customize their avatar and take it to the different games bringing their friends along and making new ones. Simultaneously, a universe of social media stars has emerged around Roblox, creating a community and a shared content. Roblox, in some sense, has similarities to Youtube, Instagram, or Tiktok as it has made it very easy to create and share games for others to play. In contrast, traditional platforms like Unity or Unreal require professional developers and designers.

Roblox makes money by selling its internal currency, Robux, and a premium subscription feature that allows for cheaper Robux purchases. Robux, in turn, power the whole of the Roblox economy. Players use Robux to buy content and power-ups in games and buy Roblox generated, and creator developed objects for avatars. Creators make Robux from these in-game sales, which can are used for their own gaming or converted back into cash. Robux have been selling at about 1 cent, while creators can convert them back at 0,35 cents.

The platforms’ golden virtuous cycle is already alive and kicking. More players come to play the experiences, which brings more creators who can monetize their creativity. Around this, a community of players and influencers create a conversation that makes the latest game (e.g., Piggy’s latest chapter) or experience (e.g., the Bloxy awards 7th edition) relevant to everyone. Roblox look-alikes are trying better graphics (e.g., Crayta, now in Google Stadia), but it doesn’t seem very easy for them to overcome Roblox’s scale advantage. Roblox low-grade graphics make game creation easier and expand the potential device population that can support the games.

Roblox also has a strong focus on safety. The transfer of Roblox is limited to actual transactions to avoid scams or hacking. Interactions in Roblox seem safe, thanks to an extensive safety staff worldwide.

Roblox performance

According to the S-1, Roblox has reached a substantial scale already. It has over 30 million Daily Active Users (DAUs) and has close to 20 million “experiences” (games and similar). These DAUs have brought in $1.2B in bookings in the first nine months of 2020, about $55 per DAU and year. Both DAUs and monetization have grown considerably (~x3 in bookings and close to x2 in DAUs). The pandemic has accelerated adoption, but the latest quarter shows the gains seem to have consolidated (8.7 billion hours in Q3 vs. 8.6 billion in Q2).

Roblox spends bookings in the following way. Close to 30% go to pay the “railroad tax” that Google and Apple charge for mobile transactions. The second category is creator payouts, which are now at 17% (over $200M). Roblox claims that its key priority is to accelerate creator payouts to power its golden virtuous cycle. The third is compensation at 14%, with technical infrastructure at 8% and other at 4%. Roblox already has reached a 30% margin on its Robux bookings.

The GAAP picture of all of this is tricky to understand. Roblox recognizes revenue and associated costs over the next 23 months after the purchase. Consequently, revenue lags bookings, and under GAAP, Roblox still recognizes losses. However, its cash dynamic is exceptionally positive, with $345M positive operating cash flow over the last nine months. Roblox doesn’t need the money from the IPO. It is going public to give its shareholders liquidity.

Roblox potential

Roblox’s potential depends on its revenue potential and profitability. Let us take profitability first. Roblox is already at 30% of bookings. ~45-50% of its revenues are payments to Google and Apple and payments for creators. We can expect those to stay constant, as Roblox has pledged it will give creators any improvements it achieves with Google and Apple. The other 20-25% of costs are employees, infrastructure, and general expenses. These costs would benefit from improved operational leverage and could be potentially reduced to at least the 15-20% range, if not further. Consequently, we could consider a bull case of 40% margin (45%+15%) and a bear case of staying at 30% (50%+20%).

Estimating topline potential is far trickier. It depends on the user base and revenue per user. Current revenue per user is about $50-55 per DAU per year, far higher in the US & Canada (>$100). However, the cohort curves shared in the S1 show that Roblox is getting much better at monetizing across regions. We could consider 2030 bookings per DAU at $12/month, in line with best practices like WoW subscribers. $12/month/DAU would take the current 5 cents per hour to 15 cents per hour, still very cheap entertainment.

In terms of users, there are 36M average DAUs in Q3 2020. A bull case could take it to x7 over the next decade, to over 200M average DAUs, around 800-900M MAUs. This scale is only reachable in a 1.5B+ addressable market and with dominant market reach. This requires Roblox to expand successfully in two ways:

  • Demographics. Currently, demographics are pretty concentrated. More than half are in the core Roblox user group of 7-13. According to the S-1, Roblox is managing to expand effectively in the 13-24 user group. Roblox’s key challenge is that the 7-24 demographic in medium and high-income countries will stagnate over the next decade. Getting to over 200M average DAUs would require to break into the 24+ demographic to expand their addressable market beyond 1 billion people. Roblox just acquired the assets and critical talent of Imbellus, a gaming developer for learning and evaluation. Imbellus has famously developed Mckinsey’s gamified interviewing first round. The Imbellus acquisition could extend the platform beyond the 24-year range and the pure gaming use case. 
  • Geographically, Roblox has a similar presence in Europe and North America (~65% between the two), with 25% in the Rest of the World and only 15% in APAC. All regions are growing between 60-90%. However, APAC is a relatively underpenetrated region. Roblox is working on this with increased penetration in Korea and a partnership with Tencent in China. Getting to 200M+ DAUs would require an at-scale APAC presence.

Putting together all the pieces in terms of potential would take Roblox to the $25-30B bookings range with approximate cash conversion of those bookings of $10-15B by 2030. This size would be a 15-20x potential growth from today.

Roblox valuation

Rumors point to a Roblox valuation in the $8 billion range, double its last private market valuation at $4B. If this were to be accurate, it would look like a bargain. With a potential 2020 operating cash flow of over $500M, a 20x multiple would already support a $10B valuation based on current cash flow generation. If you believe Roblox is a platform and not a game and given its current growth rates and competitive moats, this would be a very attractive valuation.

A bull case takes us far beyond this. Starting with the 2030 $10-15B cash flow generation potential and a 15-20x EV multiple, we could be talking about a ~$200B valuation for Roblox in 2030 if everything pans out. Bringing it back to today at 10% cost of capital, we could justify a $50-70B valuation today.

CNBC put forward a middle of the road scenario comparing Roblox to Unity, which is already public and has more than doubled since its stockmarket debut some months ago. It puts Roblox at $37B valuation.

If we assume the offering brings the number of shares to ~600M (about 20% dilution on the current ~500M), the base value would be a $15 share price range, CNBC would be at about $60, while the bull case would take us to $100.

Roblox is relatively unknown in a category that is still not familiar to investors. Its accounting is complex, and there is no clarity on its addressable market. Even relatively sophisticated investors like Jason Calacanis fail to see it as a platform. Consequently, it is difficult to see investors piling on to this one and elevating it to its bull scenario as it has happened with Snowflake. Roblox could be a slow burn that gradually builds value as its incredible growth potential plays out over time.

From the Roblox perspective, this would make it smart to do a small raise, given they don’t require the cash infusion. Enough to create liquidity and free-float, but as little dilution as possible at an arguably low valuation.

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Beware of the Siren’s Song of trending technologies

It might be tempting to leapfrog directly into AI, 5G, and blockchain. However, if your business isn’t cloudified yet, it will be a recipe for disaster. Cloud might be boring, but it is the place to start. Do the hard work of taking your company to the cloud and only after reach for the stars.

The world is changing at an unprecedented pace. New technologies come out every day. According to the pundits, AI is the future, data is the new oil, and Bitcoin will reach $500k. The tenure in the S&P 500 is shorter than ever, and companies need to transform. Not changing is probably fatal. 

Trying to do AI/Blockchain/insert the latest fad before you have moved to the cloud is trying to teach your child to run a marathon before walking. Execution will fail. Credibility will plummet. Talent will be frustrated. Worst of all, cloudification will be delayed. Tie yourself to the mast and focus on getting the basics right first relentlessly, regardless of the siren songs.

The basics are straightforward:

  1. Are your systems in the cloud, or do you still have on-premises data centers with physical servers? Get rid of those first.
  2. Do you have a microservices architecture with APIs, or do you still have your COBOL mainframe monoliths? Get rid of those first.
  3. Are you deploying in agile, or do you still have multi-year waterfall projects that never deploy? Get rid of those first.
  4. Is your front-office multichannel and automated, or do you still have siloed channels with manual customer interactions? Get rid of those first.
  5. Are your back-office and operations zero-touch, or do you still have mostly manual processes? Get rid of those first.
  6. Do you have a data-lake accessible to all through citizen BI tools, or do you still have armies of people processing information through excels and legacy BI with gatekeepers? Get rid of those first.
  7. Do you have an agile organization with multidisciplinary teams focused on delivering customer value with citizen developer capabilities, or do you still have fiefdoms and siloes that depend on a centralized IT for the smallest changes? Get rid of those first.
  8. Do you have everyone’s workplace in the cloud so they can efficiently work from anywhere, or are you full of local servers and storage? Get rid of those first.

Doing the basics right will be a long, painful slog. It will also be a lot less glamorous than 5G edge-enabled AI blockchain-native agents. However, they will also be a lot more useful for the business, the customer, employees, and the bottom line. Check on each of the eight basics with tangible metrics:

  1. # Cloud/virtual servers vs. # physical servers
  2. # microservices with APIs vs. # of monolith applications
  3. # agile teams vs. # waterfall projects
  4. % of zero-touch customer interactions
  5. % of zero-touch back-office operations
  6. % of employees with access to your data lake through citizen BI tools
  7. % of employees with citizen developer capabilities
  8. # of workplace applications or storage locations that are not totally in the cloud

Maybe give yourself an AI project as a reward if you manage to push the metrics forward substantially. Don’t invest heavily in the fancy stuff until you have the basics right. It won’t work.

Blockchain, Digital Governance, Español, Uncategorized

Revolución Exponencial #4 – Especulaciones sobre la Gobernanza Digital

Ya echamos un vistazo a ejemplos reales de Gobernanza Digital en una publicación anterior. Para continuar explorando la revolución tecnológica exponencial n. ° 4 – Gobernanza digital, veremos algunos conceptos todavia más especulativos. Hay algunos hechos para soportar las especulaciones, pero aún no hay implementaciones reales.

Criptomonedas públicas una criptomoneda con respaldo estatal.

Una vez que Bitcoin comenzó a ganar fuerza, el siguiente paso obvio era la hibridación de Bitcoin y una moneda fiduciaria. Por supuesto, este es un paso aterrador para cualquier gobierno, así que aún no lo hemos visto ocurrir. Sin embargo, es probable que solo sea cuestión de tiempo hasta que tengamos la primera criptomoneda con el respaldo de un Banco Nacional y la consideración de la moneda de curso legal. Una moneda fiduciaria respaldada por una cadena de bloques podría ser una verdadera disrupción. Con el respaldo legal de un estado y la protección de la inflacióny la flexibilidad de una criptomoneda. Esto podría desafiar rápidamente el papel del dólar como la moneda de reserva de elección y el papel de Bitcoin como el primer almacén de valor cripto.

Dado esto, el premio para el ganador podría ser muy alto para una criptomoneda pública. Hay rumores de criptomonedas que están siendo considerados por varios gobiernos nacionales:

China. Después de varios rumores sin fundamento. Yao Qian, el Director de la Unidad de Investigación de Divisas Digitales (respaldado por el Banco Central de China) comunicó el plan para una criptomoneda respaldada por el estado en la reunión de la ITU. El objetivo sería crear una criptomoneda estable que resuelva los problemas de inflación del Yuan

Suecia. Al parecer, uno de los países más avanzados del mundo en términos de eliminar el efectivo está explorando el lanzamiento de eKrona. Esto se comunicó a fines del año pasado con un período de exploración de dos años.

Rusia. Se rumorea que Vladimir Putin se encuentra a menudo con Vitalik Buterin para discutir sobre criptomonedas. El gobierno ruso ha pasado de una postura muy negativa sobre las criptomonedas al apoyo por elementos de peso del gobierno, e incluso a un aparente anuncio del CryptoRublo.

US. Para EE. UU. tenemos especulaciones, como una predicción del experto en divisas Doug Casey.

Singapur. La autoridad monetaria de Singapur (MAS) está respaldando una prueba de concepto de Utility Coin con un consorcio bancario. Esto equivaldría a los derechos especiales de giro del FMI, pero con una infraestructura blockchain. Singapur tiene una historia de moverse audazmente hacia las nuevas tecnologías cuando cree que hay valor para ser capturado.

Estonia. Si es digital, Estonia está en ello. Más allá de muchas otras iniciativas de Gobernanza Digital muy interesantes, Estonia está explorando la creación de una criptomoneda respaldada por el estado.

Las criptomonedas nacionales en general aún se encuentran en la etapa de planificación y especulación, pero podrían ser un paso adelante en términos de Gobernanza Digital.

Propiedad y acceso digitales eliminando al intermediario, fraccionando la propiedad e iluminando las cadenas de suministro.

Los marketplaces han tomado la economía por asalto. Lo que solían ser mercados profundos y oscuros como alquiler de propiedades, taxistas, peluquerías o niñeras se están abriendo y se hacen transparentes por los ellos. Estas plataformas, como AirBNB o Uber, se colocan en medio de los proveedores de servicios y clientes y crean una experiencia de contratación y descubrimiento mucho más fácil al tiempo que capturan una parte sustancial del pastel.

La gobernanza digital puede extender esta transformación de tres maneras. Primero, hay varios proyectos con el objetivo de crear mercados descentralizados de código abierto sin intermediarios. Segundo, otros están tratando de fraccionar la propiedad para hacer que todos jueguen en ambos lados. En tercer lugar, el origen de los productos en la mayoría de los mercados es poco trazable, por lo que las cadenas de suministro transparentes pueden cambiar sustancialmente el juego.

Slock.it, un AirBNB descentralizado. ¿Se puede tener la funcionalidad de AirBNB sin un AirBNB ? Esa es la premisa de Slock.it. Una plataforma de código abierto para listar plataformas y hacer ofertas en ellas, donde las transacciones se operan en una cadena de bloques y que la misma cadena de bloques controla los bloqueos de la propiedad y arbitra disputas. Es un DAO para AirBNB y uno que no necesita tomar un recorte del 15% de cada transacción.

El sueño de Elon: que todos tengan un Tesla. Elon Musk es el Henry Ford de nuestra época, incluso quiere poner un Tesla en las manos de cada persona, al igual que hizo el Sr. Ford con el Modelo T. Nos ha dado modelos más baratos, el Powerwall y los paneles solares. Ahora quiere devolvernos el tiempo no utilizado de nuestro automóvil (el 95% según la mayoría de las estimaciones) para que no tengamos que pagar por él. ¿Cómo piensa hacerlo? Propiedad fraccionada. Como la multipropiedad de las casas de vacaciones, pero mucho más matizado y flexible gracias a Digital Governance. Comienza a agregar una columna de porcentaje a la lista de cosas que tienes. Tal vez solo necesites el 1% de esa toalla de gimnasio.

Transparencia de la cadena de suministro. Finalmente, la mayoría de las cadenas de suministro del mundo, tanto digitales como analógicas, son muy difíciles de auditar. No sabes de dónde vino ese tomate que comes. ¿Fue producido por trabajadores esclavos en Corea del Norte? ¿Ha estado expuesto a productos químicos peligrosos? Blockchain se compromete a hacer un seguimiento fácil y económico de todo lo que hay saber para cada elemento y resolver esas preguntas. El cambio que podría surgir de eso es asombroso. Muchas compañías están probando esto, con Walmart e IBM teniendo algunos de los proyectos más visibles.

Criptoleyes el mayor avance legislativo desde el Código de Hammurabi.

Los cripto-abogados suenan como algo realmente genial y aterrador, un poco como ninjas. Creo que esta va a ser una de las principales profesiones del mundo en el futuro cercano a medida que se unan las leyes y el código.

La ley es un conjunto de contratos entre todas las personas de un estado. Es cierto que es un conjunto de contratos extremadamente complejo. Las ramas legislativa y judicial del gobierno son responsables de actualizar y hacer cumplir esos contratos. La creciente complejidad y los métodos analógicos que utilizamos hacen que ambas ramas funcionen tremendamente despacio mientras gastamos enormes cantidades en ellas. Esto nos hace a todos extremadamente infelices.

¿Podemos poner la ley en Ethereum? ¿Se aplicaría automáticamente? ¿Podríamos refactorizarla para simplificarla? ¿Podríamos simular el impacto de los cambios antes de que sucedan? ¿Los impuestos se cobrarían automáticamente? ¿Podemos bifurcarlo para probar dos enfoques diferentes para una prueba A / B? La respuesta a todo esto es que sí. Sin embargo, hay que recordar el DAO. No queremos que nuestro mundo sea tomado por un supercriminal que encuentre el “bug”. Tenemos que hacerlo paso a paso.

El Github de Hammurabi ni siquiera está cerca de las grandes estelas de piedra en términos de espectacularidad. Sin embargo, podría ser mucho más práctico de hacer cumplir, evolucionar y comprender. Después de todo, tenemos poco que mostrar en la innovación legal, desde que Hammurabi nos dio ese primer código escrito de leyes.