After decades of low, stable interest rates, a whole generation of managers and consumers is experiencing both global instability and widespread price increases for the first time. While it’s unlikely that we will return to the days of 16% home mortgages or certificates of deposit any time soon, the new normal will alter decision-making and add constraints to an already complex landscape. What might we watch for in tech?
Of course, the inflation is happening for a variety of reasons. Higher prices and interest rates are emerging against a backdrop of a two-year-old pandemic that may or may not mutate to flu-like epidemics, against a volatile regional conflict that could involve more of Europe, and against widespread social and cultural instability, much of it aided and abetted by social media. Many of the implications of inflation also imply one or more of these other forces.
1) As the cost (and uncertainty) of borrowing goes up, CFOs will likely be more cautious in expending working capital and/or taking on debt. I have no idea how many managers might be pitching internal IT investment these days, but my hunch is that the break-even point for an in-house data center just moved significantly. Lots of factors drive the adoption of cloud computing, but the pay-as-you-go approach might increase its appeal for organizations still on the fence in the near term.
2) Oil prices might be easing a bit: $100 a barrel is off the $125 high, but still about 35% higher than December levels. $4/gallon gasoline and its diesel equivalent put an instant hurt on anybody driving around: Uber and Lyft already added surcharges, and other meal-delivery services will have to act similarly. As I noted last month, Uber’s ground truth is likely worse than its public story suggests, so the fuel-price shock could be a major stressor on the basic business model there. For bigger players, especially Amazon, even the recent Prime price increase will probably not cover a potential near-doubling in fuel costs. Prices for delivered goods will have to go up, but the efficient bulk-scale supply chain Walmart runs give it a considerable advantage over the onesie/twosie front-door logistics employed at Amazon. Maybe click-and-collect via Whole Foods or the rapidly growing network of local delivery stations will get increased emphasis, pushing last mile costs onto the customer. (The day after I drafted this paragraph, I got a $10 coupon from Amazon encouraging me to pick up ay my local delivery station.)
3) After two years of remote work, limited concerts and dining out, and kids falling behind at school, where will people want to live? Urban real estate appears to rebounding strongly: I saw rent for a Brooklyn 2-bedroom apartment increasing by $800/month, and San Francisco, Denver, and Boston continue to lead the country in gentrification, to cite two data points. Add the uncertainty around Covid BA.2 and around rising interest rates, and residential living choices grow extremely fuzzy. Will masking and/or remote learning return? How long will remote work be supported or even permitted at how many employers? Why live close to a workplace one rarely visits? If I move far from the office, how much does gas-price forecasting influence my budgeting? How much will parents weigh school-district remote or masking policies alongside more familiar metrics like test scores or college placements? When push (rising mortgage rates) comes to shove (limited spending power already tested by high housing prices), what gives? To come back to our tech focus, what will we see from Zoom/MS Teams/WebEx et al? What about Zillow? At a global scale, what will become of the Russian and Western European diaspora of STEM talent?
4) As wage and benefit costs continue to increase, permanent hiring becomes more expensive. Add in fuzzy demand forecasts for everything from fuel to food to flying, and I would expect to see even heavier reliance on contractors, including gig workers, at more firms. This could be a boom in the markets where Upwork, TaskRabbit, Fiverr, and Guru.com operate.
5) Price increases are showing up in every area of life. Just as Uber/Lyft had to stop subsidizing rides, so too will streaming services retreat from introductory pricing. Netflix standard service already went up $1.50/month in January, its sixth increase since 2013, and more recently it signaled that shared logins may be coming in for tighter scrutiny. Given that Spotify (which raised prices late last year), Apple, Paramount, Hulu, HBO, Disney, Amazon, Peacock, Playstation, Wondery, Luminary, and Sling are all fighting Netflix for share of wallet, belt-tightening is inevitable. It feels like there could be a shakeout here as few households will subscribe to more than 5 different services (the current average) and that list of 13 doesn’t include Fubo, Tidal, or Qobuz, all of which have sometimes passionate niche audiences. And where does Roblox, not technically a streaming service, fit?
6) Whither trade shows? Just as masking mandates and restaurant closures were lifting across much of the world, air travel is now likely to get very expensive very fast, plus it’s not at all clear what the state of the virus will be a year from now. Academic meetings, business-to-business trade shows, and offsite client junkets — can you count on golf being an option in Arizona this summer given the drought? What about wine tours to Napa? — have new headwinds. The industries that support business travel and entertainment look like they may continue to suffer. What opportunities might this shift create for VR, videoconferencing, or other alternatives? As for airline stocks, it’s hard to see leisure travelers filling the void left by business fliers, especially as drought threatens many US destinations and Covid gives people pause before flying overseas.
What can we conclude from all of this? Note the thread of “where” weaving through the list: working, living, meeting, and recreating will change locus given both inflationary pressures and the growing list of virtual alternatives. Aligned with the “where” issue is an organizational crossroads. How people can assemble resources to get things done — remote vs in-person, permanent hire vs contractor, at the client or remote from the client, onshore vs offshore, bot vs human — just got more complicated. As new organizational designs emerge, what happens to old signals like office size/location, job title, seniority, or dress codes? What are the evergreen skills that will never fall from usefulness, even as they fall from trendiness? What new skills will emerge as millions of workers shape and adapt to new organizational experiments? Finally, where might there be step-function productivity gains that help economies and households adapt to the new reality of more-expensive everything?
Much uncertainty lies ahead, but as always, there will be people who can screen out the ephemeral noise and focus on foundational realities, and there are plenty of opportunities for those who are able to do so. In 1981, at the height of historic interest rates, at least a half-dozen firms that became significant players in their sectors — America West airlines, Cirrus Logic, LSI semiconductors, Princeton Review, Quality Bicycle Products, Sevin Rosen Funds, Tanger Factory Outlets — set up shop. Each of these seized on a nascent trend and did what they had to do, interest rates notwithstanding, to define, identify, and serve critical new markets. Who from today’s crop of innovators will we look back on in 40 years with the same kind of respect?
Posts
