The Thread Briefing: rise of curation, innovation theatre, and the end of cheap money
Welcome to the inaugural Thread Briefing!
This is a fortnightly round-up of the smartest things we’ve ingested recently, global innovation insights and a snapshot of what we’ve been up to in London, Hong Kong and beyond.
Coming up this week… the death of search and the rise of curation, unit economics is cool again, how to avoid innovation theatre, a global perspective on ecommerce and a selection of web3 hyperbole and realism.
The death of Google and rise of curation
Google launched in 1998 with a mission to ‘organise the world’s information”. Back then this meant 25 million pages, and the speed and reliability of its results blew our tiny minds. Today the ‘world’s information’ is over 100 trillion pages and it’s much more common to find people complaining about the quality of its results.
This post is a good summary of the key gripes, pointing the finger at issues like too many ads crowding out real results and too many people gaming the algorithm with SEO-filled content marketing and affiliate links disguised as listicles. It’s increasingly difficult to find honest reviews and unbiased recommendations, and yet that is more often than not why we’re searching in the first place.
This is why we’ve seen the rise of vertical search dedicated to specific domains, like Airbnb, Zoopla and LinkedIn. The things that are important when searching for a holiday rental are different from the things you want to filter for when searching for an employee or a family home, and the vertical nature of these brands means they can have a strong opinion on the information that matters.
And yet, as product lines and choice explodes even vertical search becomes insufficient, and increasing levels of curation is necessary. AirBnB has recently introduced a revamped ability to search by categories, which makes total sense when inventory skyrockets, personal taste varies wildly, and your customers are looking for inspiration.
What’s really interesting is the way Airbnb is not only relying on machine learning to create these categories but using a manual (human) review to add a final curation layer on top. The combination of AI and the human touch will increasingly be the source of competitive advantage for forward-thinking businesses.
Pushing this idea even further, we’re now seeing the emergence of boutique search that rely on curation as much as (or more than) algorithm. Startupy describes itself as a community-curated search engine and is funded by subscription rather than ads. The founder, Sari Azout, has an eloquent take on the failings of traditional search and the need for a more curated, boutique model.
Thread’s take:
Whether you’re a retailer selling make-up or a streaming company helping viewers find their next box-set, the challenges for many modern businesses is recommendation and matchmaking in categories of abundance.
While a wide range of choice is something customers often ask for and gravitate towards, if you’re only focused on offering customers more and neglecting helping them choose you will lose out to competitors that are able to do both.
For all the hyperbole about AI-drive personalisation, we think experiences like Amazon and Netflix are pretty basic and the bar is incredibly low for what counts as ‘recommendation’. For inspiration look to brands that combine algorithm and the human touch, such as Airbnb and Spotify, but we’re really only just beginning.
The end of cheap money
The downturn in markets is a reckoning for many start-ups and scale-ups that have relied on cheap VC money and neglected profits at the expense of growth.
This recent briefing by legendary VC firm Sequoia to it’s portfolio of companies put it succinctly:
“the cost of capital has fundamentally increased. Over the past two years, monetary policy loosened to avert an economic disaster in the midst of the pandemic. Negative real interest rates led to effortless fundraising for growth ‘companies and record valuation levels. Given the circumstances, that was perfectly rational. But now rates are rising, money is no longer free, and that has massive implications for valuations and fundraising.”
We would argue that cheap money has been readily available to start-ups for much longer than the last two years, but the point remains - companies relying on a faucet of funding to chase growth and hide business model flaws are having to seriously re-think their strategy.
The poster child here has got to be Uber, which lost a staggering $30bn over the last five years alone. According to the CEO of Uber,
“This next period will be different, and it will require a different approach. … We have to make sure our unit economics work before we go big.”
Uber are not alone though. Recent research shows that only 5% of Neobanks are turning a profit, and Buy-Now-Pay-Later companies are about to face a reckoning, with Klarna (Europe’s largest FinTech) recently announcing a shedding of 10% of it’s workforce and another funding round that will reduce it’s valuation by a third.
Thread’s take:
In contrast to start-ups, corporate innovators know they can’t completely neglect poor unit economics and rely on endless cheap VC money in the hope of an exit. However, we’ve seen many large organisations start to innovate in areas that have yet to prove themselves as viable categories, with neobanks and consumer FinTech being a classic example. While customers may love cheap rides and slick banking user experiences, it remains to be seen if they value them sufficiently to pay what it takes to make the unit economics work and turn these initiatives into sustainable businesses in the medium and long term.
The perils of innovation theatre
Our founders MJ and Lilian wrote a short article all about why successful innovation is more often than not about the unsexy stuff rather than the sparkly brainstorms and post-it notes. Check out the article to learn about the four features of genuine corporate innovation.
Tasty morsels worth sharing:
Great article on changing nature of shopping around the world: from buying a Chinese chicken burger via live streaming to buying British baby formula via Facebook in Vietnam.
We’ve seen the peak of internal combustion engines.
Heartbreaking stories of lifesavings lost by the recent crash in stablecoins.
Despite this, Silicon Valley VC firm a16z recently published a bullish Future of Crypto report, just as they raise a new $4bn crypto fund.
New report on working from home by the UK’s Office for National Statistics suggests more people are now working from home, and for most of the week.
And finally…
This past fortnight we’ve been working on a fascinating new international innovation project all about digital education, with team members in Italy, Thailand, Hong Kong, and Australia. If you’d like to discuss how we approach product, service and business innovation at Thread, please don’t hesitate to get in touch.