Hi Friends 👋🏻,
Happy Monday / Quarantine Day Number Whatever I’ve Lost Count! I’m excited about today’s topic, so let’s dive right in.
Accelerating Trends and Low-End Disruption
There has been a lot of talk of simulations recently - people are running them to understand how the virus will spread, how many hospital beds and ventilators we’ll need, and when this thing might end. Elon Musk takes it a step further - he has been saying that we are probably living in a simulation since at least 2016.
Are we? No idea. But there’s something eerie about this pandemic. It’s accelerating so many trends that were already underway - many of which I’ve written about here - that it feels like some cosmic gamer just hit the 4x speed button in the simulation.
Below are some stats and thoughts on just nine of the many accelerated trends, and an exploration of this experiment in forced low-end disruption we’re in the middle of.
Remote work: This one is obvious. Everyone who can do their job from home is. To whit, according to Zoom’s CEO Eric Yuan, Zoom’s Daily Active Users have ballooned from 10 million in December to 200 million in March.
According to Flexjobs, before the coronavirus, remote work had grown a respectable 44% off of a small base over the past 5 years. In the past month, Zoom usage, not a perfect proxy but close enough, has grown 2000%. Even Goldman Sachs’ might permanently adopt more flexible work policies after this.
Flexible Office: The venture capital firm NFX recently surveyed 286 Seed and Series A startups on a host of issues related to the pandemic. A full quarter of them said that they plan to end their office lease as a result of Coronavirus. It’s too early to tell how many will go through with it, and leases are written such that many won’t succeed. Either way, companies will push for more flexible leases and smaller footprints that serve as office showrooms for their companies, but don’t necessarily house every employee every day.
Downfall of overfunded startups: Barring a PPP miracle, many unicorns will fail. Many more are already using this as an excuse to trim teams that were built for growth, not profitability. A few of the big names announcing massive layoffs last week were Knotel, The Wing, and Bird. Candor has a running list of all of the companies that have done layoffs.
Subscription media: Media brands that rely on advertising are struggling as most advertisers (other than MasterClass and Quibi, they’re everywhere) pull spend. Subscription media, on the other hand, is booming.
E-commerce: E-commerce penetration in the US, the % of all the things we buy that we buy online, hit 11.4% in 2019. Assuming the credit bubble doesn’t pop, that could hit 30% or more in the coming months.
Telemedecine: Telemedecine, video and text chatting with your doctor for simple diagnoses and prescriptions, is seeing massive growth. Plushcare has seen a 70% spike in appointments, Amwell’s usage has jumped 158%, and Ro recently launched a telehealth Coronavirus assessment. Meanwhile, in the public markets, Teladoc’s shares have risen 83% over the past three months.
Videogames 🤯: Speaking of the simulation, video game usage is up 75% since the quarantine began in the US, according to Verizon, and in Japan, sales of the Nintendo Switch are up 240% in the past month.
Sourdough: OK, this is a brand new trend. Searches for sourdough have spiked over the past few weeks. Everyone is making their own bread. In fact, according to Stackline, Bread Machines are the second-fastest-growing e-commerce category at 642% growth.
Online education: Remote work isn’t the only thing driving Zoom’s 2000% growth. Zoom CEO Yuan wrote that, “This includes over 90,000 schools across 20 countries that have taken us up on our offer to help children continue their education remotely.” Millions (billions?) of students who started their semester in a classroom are ending it online. The classroom and Zoom are two very different experiences.
Which brings us to low-end disruption…
What is Low-End Disruption?
The late Clayton Christensen, a Harvard Business School professor and leading business theorist, is probably most famous for his theory of disruptive innovation: “an innovation that creates a new market and value network and eventually disrupts an existing market and value network, displacing established market-leading firms, products, and alliances.”
Since he first wrote about the theory in 1995, it has been used, abused, and misused to describe any time a new entrant comes into a market and beats an incumbent. But the definition is more precise than that. In a 2015 Harvard Business Review article, Christensen, along with two co-authors, set the record straight. They cited two rules of thumb to use when determining whether an innovation is a “disruptive innovation”:
Disruptive innovations originate in low-end or new-market footholds.
Disruptive innovations don’t catch on with mainstream customers until quality catches up to their standards.
Take video streaming. Instead of paying hundreds for the full cable package, consumers could pay Netflix $9.99 for access to good enough content that would keep them entertained. Over time, new streaming services have sprung up (Quibi launches today), and streaming providers have added features like live TV, meaning that the mainstream will be more and more comfortable “cutting the cord.”
Because of the crisis, we are now in a period of forced low-end disruption and forced mainstream adoption across industries. Many of the nine trends above are examples of forced low-end disruption. We are seeing myriad hacks in the way we work, play, shop, and learn originate in the low-end, while simultaneously catching on with mainstream customers before quality catches up to their standards. In many cases, they don’t have a choice.
Typically, low-end disruption follows this trajectory:
The new product starts out with a minimal set of features that do a good enough job for a subset of customers that could not previously access or afford the incumbent product. Over time, as the product attracts customers and revenue, it adds features and improves product performance at a faster rate than the incumbent product does, ultimately overtaking it to serve the high-end of the market.
The COVID outbreak, like it has done to so many things, is throwing that pattern for a loop. We have to settle for good enough earlier than normal, because the high-end option has been cut off. Let’s look at education as an example.
The Disruption of Education
Many people have written about the disruption of the education system over the past year. I’ve done it myself. To quickly sum up the main arguments:
Education is outlandishly expensive.
Education is being unbundled, and now you’re really just paying for the credential and the network.
All of the content is available online anyway.
Despite the counterarguments, physically attending college, and paying for it, is by far the most popular and well-accepted educational path. Online classes, for all the hype, sport something like a 3% completion rate.
Over the past month, though, every school in the country has sent its students home and scrambled to recreate the educational experience online. Predictably, people who are about to leave school with over $100k in debt are unhappy, because either:
a) They have been overpaying the whole time, or
b) They are currently overpaying because the real deal actually is worth the money, and the online version, for which they’re paying full price, is subpar.
Both are true, depending on which part of the market you look at.
At the high-end of the market, people are quickly realizing that you cannot replicate the magic of a college experience from your couch, no matter how good the content. Going to harvard.com is not the same as going to Harvard.
But disruptive innovation happens at the low-end. Some people, having realized that they are still able to learn, will opt out of the traditional path and learn online for a lot less. They will take classes online, join clubs and accountability groups in-person, and piece together a more affordable education that’s good enough.
The COVID outbreak will give new entrants the low-end foothold they need to begin their upward trajectory. I have spoken to, and seen tweets from, hundreds of people who are giving online education a try over the past few weeks. Not just college students, but lifelong learners, and even parents of small children, are turning online for education for the first time.
MasterClass is offering two subscriptions for the price of one, Teachable saw its student-side demand double, including a 20% increase in paid course sales, and Coursera is offering Coursera for Campus to all universities for free. David Perell and Tiago Forte have received hundreds of signups for their writing and productivity courses. Thousands of small, independent creators are offering educational content for the first time.
These offerings can’t replicate the on-campus experience, but at a small fraction of the cost, they will be good enough for many of the people forced to try them for the first time.
From here, we will see an ecosystem grow up around these online offerings that moves them up the product performance curve over time. In ten years, we may very well see three main options - either you pay up to go to an Ivy League school, get an affordable education with the full college experience at a state school, or learn primarily online and replicate the college experience offline in new ways.
Good enough will continue to get better. Classic low-end disruption.
Social (Distancing) Studies and Low-End Disruption
Now for a quick plug for our new program, Social (Distancing) Studies. We’re essentially offering a low-end alternative to more expensive education for continuing learners. Instead of paying thousands of dollars to be taught, we are betting that the people will be able to pay $100 and get 80% of the value of a more expensive class. Instead of buying the full bundle, they will be teaching themselves and each other, and paying for the accountability and network.
Just a few days after launching, we already have people signed up to learn to code, to learn no-code, to write, meditate, draw, study economics and philosophy, to read every day, and more.
The six-week program starts on April 13th. Learn more and apply at the link below:
Links & Listens
🌍 World 2.0 | Tyler Cowen
Cowen, an economist at George Mason University and author of the popular Marginal Revolutions blog, kicks off this post with a quote from Vladimir Lenin:
“There are decades where nothing happens, and weeks where decades happen.”
In lieu of an essay, Cowen includes a table with 51 ways the world is different now than it was a month ago.
💊 Out of Pocket | Nikhil Krishnan
Until recently, I avoided the healthcare industry like the plague. It’s so confusing, there’s so much red tape, HIPAA, blah blah blah. But now, there’s no way to avoid learning about healthcare. Thankfully, Nikhil’s newsletter, Out of Pocket, is a funny and approachable way to learn about what’s going on. He even has memes.
His last two, on Randomized Controlled Trials and Real-World Evidence are particularly good.
🗽 Sounds of New York | Breather x MSCHF
A few years ago, Breather worked with MSCHF to record the distinct sounds of 25 New York City neighborhoods. The point then was to contrast the noise outside to the peace and quiet of a Breather space, but now it’s the perfect thing to listen to to remind yourself of what this city sounds and feels like when it’s fully alive.
🛳 A Supposedly Fun Thing I’ll Never Do Again | David Foster Wallace
David Foster Wallace is one of the great American writers, best known for his 1,079 page, heavily-footnoted, deeply unapproachable, mindblowingly-well-written book Infinite Jest. In this 24 page essay, originally published in Harper’s as Shipping Out, DFW takes his acerbic wit to his experience taking a cruise. He wrote it in 1996 but I’m recommending it now for two reasons 1) reading it will help you push any last temptation of hopping on a dangerous cruise ship out of your mind, and 2) I hope that this short, approachable entrée to David Foster Wallace’s work makes you want to take advantage of the quarantine to read some of his longer stuff.
While you’re here, watch his 2005 Kenyon College graduation speech, This is Water.
💸 Bill Gates on The Daily Show
Remember a couple of months ago when we were villainizing Bill Gates for being a billionaire and suggesting that his money would be better spent by the government? I said it then and I’ll say it now: that was idiotic. Talking to a sweatshirted Trevor Noah on The Daily Show, Gates discusses his prediction from last year that something like this would happen and the actions we can still take to flatten the curve despite the government’s lack of preparedness. He also talks about his plan to fund manufacturing capacity for the seven most promising vaccination candidates. He acknowledges that only one or two will work, but is happily prepared to lose a few billion dollars to save trillions by getting vaccinations to market as quickly as possible. I would vote for Bill Gates for President if I didn’t think that he would be so much more effective operating in the private sector.
What to Read
It’s been surprisingly hard to get through books during the quarantine. The Hidden Girl and Other Stories would have normally taken me a week, but on lockdown, it took three. It’s hard to concentrate right now, so you need a page-turner, a book that’s going to grab you early and not let go.
For me, that book was Delia Owens’ Where the Crawdads Sing. I’m not letting you in on a big secret here. The book spent 25 weeks atop the New York Times Fiction Best Seller List in 2019 and was Amazon’s top-selling book of the year. It’s also the perfect book to get you back into reading right now - a story about a girl in isolation that is beautifully written, has a bit of mystery, and is well-paced enough that you won’t want to put it down. I’m in a book club that is full of tough critics, and this is the first book we’ve read since I joined that was unanimously loved.
After Where the Crawdads Sing, you can get back into more complex stuff, but if you’re struggling to read at all, this is a good way to ease back in.
As for where to buy these books you’re going to start reading, Bookshop just launched The Bookstore at the End of the World to support independent booksellers while their stores are closed. For the next two months, 30% of the purchase price will go to booksellers who curate lists of their ten top picks. Shop local.
What’s Next?
In addition to Social (Distancing) Studies, which starts on April 13th and which you should totally sign up for, we have two fascinating Not Boring discussions coming up:
Adaptogenic and Natural Medicine for Immunity and Stress Relief | Abby Lyall | Thursday, April 9th, 7pm
Beauty in the Breadcrumbs: exploring culture, taboos, & identity through film & TV | Saadiya Mutawakil | Tuesday, April 14th, 6:30pm
Abby and Saadiya will give presentations on two fascinating topics, and then we’ll break out into small groups to discuss. I’m really excited for both, and hope that you’ll join us by clicking the links above.
That’s all for now. I’ll leave you with this beautiful quarantine art by Italian artist Perpaolo Rovero. You can find more of his work at his website.
Stay safe, stay sane, and thanks for reading,
Packy
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