The technology/e-commerce-focused Nasdaq hit record highs almost on daily basis throughout early July. Many online businesses, large and small, are growing, whilst most traditional businesses are struggling, in some cases needing government bailouts and subsidies, an indication of the great business reset.
How much will business reset after COVID-19?
Of course, nobody knows the answer to this question for sure, and the past shows how difficult it is to predict the future. After 9/11, many assumed that airlines and travel would never recover. Some people were so terrified of flying that they pledged they would never again go onboard. Flying did indeed contract for the first few years after 2001, but in the subsequent years until 2019, inbound international tourism has been one of the fastest-growing industries in the world.
Amazon was predicted to kill traditional books. To the surprise of many, physical book sales have gone up in the UK and several other markets in recent years. However, I believe that we will see real change this time. The world was already moving towards a digital economy, for one or two decades before COVID-19 struck.
Final Nail on the Coffin
The World Wide Web went live to the public in 1991, even though it was used in government before then, but it was only in the 2000s and especially 2010s that more people started to do “everything” online. The speed of the change, even before COVID-19, was stark. A potent example of this is China. I first visited China in 2007. It was a very analogue society. Most businesses were conducted in-person, with middlemen being a big part of Chinese business culture. Often if a business from one part of China wanted to do business in another province, they needed to go through middle-men and have long business dinners to establish trust.
That was then. These days, a large proportion of all business is done online and remotely.
Online reviews and social proof have largely replaced outdated, expensive, and environmentally destructive business practices such as flying to meet customers.
Despite this business reset trend, before COVID19, there were a number of people who still didn’t buy into the online trend and instead preferred old-fashioned business techniques. I expect the lockdown and coronavirus to be one of the final nails in the coffin of these traditional business practices.
Seeing Through the Lies
A key reason is that the lockdowns have exposed many of the lies and falsehoods people believed about conducting business online. People have now seen that online businesses, with lower overheads and more transparent and traceable systems, are safer than bricks and mortar businesses.
What is safer? Taking a traceable Uber or using a traditional taxi? Using an online bank or financial or legal advisory firm, or a traditional firm that has USD50,000 a month of fixed costs? The answer to these questions is obvious. Traditional firms are much more likely to go out of business if they do not shift with the great business reset.
In addition to that, we misjudge people in-person.
In his book Talking to Strangers: What We Should Know about the People We Don’t Know, Malcolm Gladwell made the astute point that people who knew the least about Hitler’s “in-person personality”, such as Winston Churchill, never met him and often didn’t even speak German. In comparison, people that met Hitler dismissed these worries.
The reason? When we meet people in person, we are more likely to allow our emotions of liking or disliking somebody to influence our decisions. Hitler might be an extreme example, but we have all misjudged people after meeting them, allowing our first impression to cloud our judgment.
There is a final reason why online interactions are taking off: in-person interactions make people feel uncomfortable. I far prefer using the e-gates at airports rather than having a human “cross-examine me”. I far prefer having a machine take my orders in a restaurant, rather than a human pressuring me for a tip.
When I am looking for legal or other services, the last thing I want to do is meet somebody in their offices. I just Google and don’t care about any form of established business norms.
Changing Consumer Preferences
The uncomfortable truth is that technology has perhaps gotten bigger, in part, because we increasingly find interacting with each other uncomfortable unless we highly trust the person. Therefore, businesses need to adapt to changing consumer preferences which existed even before coronavirus struck.
What has happened is that we have merely pressed the fast forward button. The “new normal” is merely a normal we would have faced in 2025 or 2030. Nobody can predict the future but I highly suspect we will see a number of trends. Firstly, a dramatic fall when it comes to in-person human interaction.
Second, a declining trust towards “traditional authority”. In the same way that the electorate in America didn’t care about Trump’s lack of political experience or qualifications in 2016, people increasingly care little for the views of regulators, educational authorities, and governments. The average person is more likely to be moved by their favorite influencer, online review, or celebrities than any of the aforementioned bodies.
Third, we are likely to see rising calls for increased taxes on the wealthy and maybe even the general population, with Saudi Arabia already announcing a tripling of their VAT rate. Lastly, we are likely to see a more unequal world. Those that take advantage of these trends will scale their businesses and wealth, and those that fail to adapt will suffer. The individual investor, business and individual needs to be prepared to adapt to thrive in the new world.