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Wolfgang Essentials 2016 - Constantin Gurdgiev - The Online Economy

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On June 10th 2016, Wolfgang Digital held their annual marketing event in The Foundry, at Google in Dublin. One of the speakers was the renowned economist Constantin Gurdgiev, who spoke on a couple of different topics relating to The Online Economy during part one of the event. These are his slides.

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Wolfgang Essentials 2016 - Constantin Gurdgiev - The Online Economy

  1. 1. At the Cross Roads of Growth Constantin Gurdgiev Middlebury Institute of International Studies, Monterey TCD, Dublin www.macroview.eu June 2016
  2. 2. Some choices to be made…Topic 1: The Online Economy Growth v Risks: Margins & Atomization Topic 2: Old Media, New Media The Demand Cliff Content Bubble Topic 3: Data, Analytics & AI Disrupting More Than Insights Social, Operating & Strategy Risks Topic 4: Export Opportunities Open Market Closed Demand Topic 5: Irish Economy Through 2020 Crises Ghosts The Wings of Change
  3. 3. 1. The Online Economy: Growth v Risks
  4. 4. Good News and Some Bad Consumption is growing …but it is regionalized …and downside risks dominate upside risks
  5. 5. Nature of Demand • Precautionary savings • Ageing populations • Lack of growth drivers • Sticky demand, low trust • Shrinking margins Behavioral Nudging Efficiencies Gains Short-term Challenges: 2017-2020
  6. 6. Nature of Business • Gen-Jinx & Millennials • Gen-Z • Atomization • Platforms exhaustion Behavioral Enablement Neo-Luddites Efficiency via Atomization Longer-Term: beyond 2020
  7. 7. 2. Old Media, New Media: Old Bubbles, New Baths
  8. 8. The Demand Cliff Consumption and Efficiency are Still Rising Fatigue is Rising too
  9. 9. Content Bubble? Media-driven inbound leads are still x1.5 more productive in generating traffic than outbound leads Inbound leads are 1/2 cost of outbound leads, so margins should be improved … but… content space is crowded: social media converging to blogging platforms (14% leads generation efficiency to 7%) Vanity metrics: reach ≠ engagement ≠ influence ≠ conversion 2T web users  5.3T online ads & 1.7T FB content items annually
  10. 10. Content space is crowded: social media converging to blogging platforms (14% leads gen to 7%) Vanity metrics are a problem: reach ≠ engagement ≠ influence ≠ conversion 2 trillion web users  5.3T online ads & 1.73T FB content items annually Revolt of the Middle? In 2010, 13 percent of Americans opted to forego TV services In 2015, the number was 19 percent 65% of those ages 18 to 29 had cable or satellite service at home in 2015 Compared with 83 percent of those 50 or older Of those who opted to “cut the cord” 84 percent had “advanced internet access” The key is instrumenting choice and empowering supply Unique offer at commoditized price Answer (hope): AI + Robotics
  11. 11. 3. Data, Analytics, AI: Superficial Intelligence?
  12. 12. Cost rising Systems stability falling Degree of complexity in data collection & connectivity Reputational costs (data ownership shift) Analytics must align with models & intuition Analytics will fade into data-driven demand Supply side will fade into robotics, AI-based design, behavioral modification & SCM But humans will remain… Value-Added Margins Challenge Eureka Moment High value-added in commoditized space High informational potential in design & development Bridging the gap to market The Analytics Value Curve
  13. 13. Social, Operating and Strategy Risks In operations: Smartest systems… …yield dumbest fails In production: Complements Substitutes In interactions: Aiding Displacing In strategy: Tails Uncertainty Will over-reliance on analytics and automation de-humanize the economy?
  14. 14. A Demand Plateau Internet usage is showing signs of fatigue Flat growth 9% y/y, but 7% ex-India De-accelerated steadily post-2008 (15% pa) Geography is changing Top 3 internet-enabled markets: China, India, USA Smartphones growth is slowing 21% vs. 31% y/y Smartphone shipments slowing 10% v 28% y/y -- lowest since 2008
  15. 15. 4. Export Opportunities: Open markets with closed demand?
  16. 16. Changing Patterns of the Norm U.S., Old Europe, Japan Secular stagnation: Demand side Supply side Factor analysis FX valuations, employment, GDP growth & retail sales no longer translate into global trade growth Demand geography changes in EMs Trade v domestic supply
  17. 17. Finance and Trade Disruption Policy uncertainty is elevated across the globe Advanced economies lead… …but EMs follow closely Risk correlations are now more positive Investment & Monetary Policies remain challenging Low policy rates not translating into operating, trade & capex credit easing for smaller firms Currency wars continue to rage But trade slowdown is a temporary phenomena As production & design become increasingly individual / atomistic… …through enablement via production & supply technologies, design enablement & AI… Global Trade will become borderless to facilitate transition to a new model of demand & supply matching
  18. 18. Finance and Economic Disruption Key factors Financial sector: capital, margins, NPLs, regulatory charges) Still re-trenching geographically Competitive devaluations and QE-induced volatility Indirect capital controls (Financial Repression)
  19. 19. 5. Irish Economy to 2020: Crises Ghosts & the Wings of Change
  20. 20. View From the Top Recovery shifting toward domestic sectors Investment (organic ex-FDI) Retail sales Jan-Apr 16 growth ex-motors ~ similar to 2015 in value & volume Value of sales growing slower than volume Construction pick up is off extremely low levels Drivers for growth ECB and the Euro FDI and tax optimization Domestic demand (ex-investment funds) Reduced public sector drag Recovery-related risks Property prices and rents Lack of business capex Labor markets compression Productivity growth Return to fiscal profligacy
  21. 21. Has Irish Economy Decoupled from the Global?.. Global growth slowdown World economy is expected to grow at 3.1-3.2 percent per annum in 2016- 2017 Well below historical average and average for past episodes of recoveries Irish growth trend Irish growth is de-accelerating: total domestic demand is expected to growth 4.7-4.8 percent in 2016 or ½ the rate of 2015 growth Still, this is well above 2.9-3.3 percent potential rate of growth External drivers (inc. expected tax amnesty in the U.S.) Internal drivers (bouncing from extreme losses) Internal drivers to organic upside
  22. 22. Legacy of the Crises Banking & finance 101 Mortgages 13.2% of all accounts were in arrears, 18.6% by value 207,624 accounts (23.5%) at risk (in arrears or restructured with higher or same level of debt) 31.1% of all mortgages by value (EUR39.7 billion) were in at risk Banking & finance 102 Lending Total lending to Irish households down 2% in 2015 Personal credit down 4.2% House lending down 1.7% Credit advanced to Irish Resident SMEs (ex-financial & property sectors) was down 14.8% in 2015 New lending for Irish SMEs was up just EUR245 mln y/y in 2015 Lack of consumer credit pressures demand and investment Risk mispricing  uncompetitive distortions in business credit Pensions and savings are under pressure due to NIRP Lack of business credit strategy  loss of future productivity
  23. 23. Wings of Change Economics of Growth 101 Irish Demand Early risers Gen-Jinx & Gen-Z with familial networks High mobility  lower risks & greater opportunities (indigenous & foreign) Relatively robust family formation rates Low debt of younger generations Labor market skew toward services favors younger generation Economics of Growth 102 Investment Competitive institutions & regulatory environment Minus a skew in favor of MNCs Highly open economy High HK on-shoring potential Enterprise culture is not prevalent, but coincident with exporting culture Financial risk cushions are still significant & supportive of demand growth Challenge = Opportunity: lifting indigenous exports & value-add Relatively healthy entrepreneurial culture & high HK mobility State-controlled sectors are yet to face productivity challenge

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