Searching for Value
Ignoring value when using tech to spin garbage into gold too often leaves just garbage.
Recent struggles in the tech world serve as a reminder that people buy value, not the technology enabling value. Nobody goes to a local restaurant to admire the kitchen gear: we want a good meal. Similarly, buyers care what value tech offers them, not what it is. Somehow, this commonsense notion seems widely forgotten lately.
Consider:
After a lackluster quarterly report, Mark Zuckerberg changed the name of Facebook to Meta in October 2021 realigning the business’s core strategy to building a metaverse, a 3D virtual world. Zuckerberg earmarked $10 billion annually to develop the technology. One year later the money is spent, the stock remains low, the virtual world is a ghost town, and Meta is laying off workers.
As of November 2022, Bitcoin dropped from the mid-60-thousands per coin to the mid 16’s. Crypto coin UST, a coin that was supposed to be pegged to the dollar, collapsed leading to catastrophic losses. Crypto exchange FTX also collapsed with about $10 billion. Over a decade after the introduction of crypto, one person dryly noted, “you can’t use Bitcoin to buy anything except drugs.” Investor Charlie Munger quipped “the country did not need a currency that was good for kidnappers.”
The trading volume and value of Nonfungible Tokens, or NFTs, fell 97% from January to Q3 2022. NFTs are digital signatures written on a blockchain often used to represent the ownership of artwork. Even the most popular NFTs, the Bored Ape Yacht Club, have dropped in value by half. An NFT of Twitter founder Jack Dorsey’s first tweet purchased for $2.9 million in March 2021 sat at auction for six months before finally receiving a bid for $81,845.
Elon Musk purchased Twitter for $44 billion and has yet to articulate a vision for the business. It appears he wants to create a “superapp” like China’s WeChat that enables content, commerce, and community. However, buyer desire for a Western WeChat is far from clear or, presumably, somebody would’ve built one.
None of these technologies, despite the enormous investments, have an easy-to-understand value proposition.
Zuckerberg’s metaverse requires wearing heavy 3D goggles for extended periods which the company sells in various models ranging from $400 to $1,500 to visit his empty virtual world. In contrast, when the first visual web browser, Mosaic, was released in early 1993 it ran on existing computers using dial-up modems and had immediately discoverable content. Mosaic opened a magical world; Zuck’s Horizon Worlds hasn’t.
Similarly, there’s no easy-to-understand mainstream benefit to crypto besides speculation. Even absent the fraud and theft that seem to be unusually common, the purpose behind the coins – over a dozen years after Bitcoin was released – remains opaque.
NFTs, as they were used, produce artificial scarcity to enable speculation and trading. Granted, trading collectibles can be fun, a type of value, but at the prices and volatility involved the market appears more geared towards high-risk gamblers. We’re collectively bored of NFT Apes.
Twitter offered some amount of value as a popular social network enabling people to connect with influencers in politics, economics, and culture. However, the incremental value Musk might credibly offer beyond what already exists remains murky.
Searching for Value
None of these offerings, and countless others, offered compelling value though they’re all cool tech.
For an illustration of the difference between value and technology consider the ill-fated Segway, the expensive battery-powered self-balancing two-wheeled scooter. Introduced at the end of 2001 to enormous fanfare, it never caught on. Two decades later, battery-powered scooters, absent the self-balancing tech, are a ubiquitous PIA.
The utility of the Segway made sense – we now know people do want to scoot around – but the largely useless self-balancing feature added nothing substantive. Similar to Segway and scooters, NFTs used as mini-computer programs may one day enable widespread useful applications but that’s still largely a dream whereas today it’s digital Ape ownership.
Think about why obvious buyers don’t embrace a tech offering. Oftentimes, the reason has nothing to do with technology. Take the Nintendo DS, the handheld gaming system successor to the wildly popular Nintendo Game Boy. Originally introduced in 2004, the system quickly gained popularity with young boys. Two years later, Nintendo released a pink version of the system and all but doubled their potential market size overnight with girls. Nothing was wrong with the tech; the problem was the messaging of value.
Other times, businesses originally launched as tech companies morph to focus on value. For example, in 1926 the NBC network was created by GE subsidiary RCA as a tech company. Today, NBC is a media company despite their technology is more advanced than in the early years.
There are countless tests to ascertain buyer value but the simplest involves asking the proponent of a new offering who it appeals to, what value it adds, and limiting their answer for each to one sentence. If the why is articulated in technology terms, send it back and ask what the tech does and why anybody cares, not what it is. Meta, Twitter, crypto, and NFTs vaporized well over a trillion dollars in wealth in the past year. Much of that could have been prevented, and the funds redirected towards higher value and more profitable innovation, with this simple test.