
Attention Economy Is a Malthusian Trap - toufiqbarhamov
https://www.theatlantic.com/ideas/archive/2019/01/is-the-age-of-tech-over/580504/
======
PaulHoule
It will be tougher for Amazon to squash grocery stories than it was to squash
Sears.

Grocery stores are highly competitive because people go to the grocery store
every week. For the grocery store it is a game much like "the iterated
prisoner's dilemma". Every week they have a chance to uphold their brand image
or make a quick profit. Every week they have a chance to lose big and make you
switch to another grocery store.

So they choose to uphold their brand images.

Stores and brands in other areas where transactions are less frequent have
more incentive to harvest. For instance, nearly all makers of major appliances
have given up on upholding brand image and source their appliances from the
same factories in the far east. They break down in a few years but they might
not be in business again, or maybe they bought the brand that you're going to
try next.

Grocery stores, from ALDI to Wegmans, are excellent in their own way, unlike
mall stores.

~~~
Kephael
The future of the grocery business is web based ordering and automated
delivery to the buyer. Amazon will crush other grocers due to first mover
advantage and their massive technology workforce.

~~~
rsynnott
They only really have first mover advantage in the US, though. In many
countries, internet ordering of groceries is pretty old; Tesco started it in
the UK and Ireland in _1997_, for instance, and I'm pretty sure there were
Minitel-based grocery delivery services in France before that.

The US market probably has special practical problems that European markets
don't have (low population density outside about five cities, in particular),
but it's hard to see how Amazon will automatically beat the likes of Tesco in
this just because they're a tech company.

~~~
Kephael
Internet ordering isn't where the real value is, it's in a logistics network
from warehouse to consumer that is almost entirely automated.

~~~
rsynnott
On the warehouse side, the incumbents are doing that. Funnily enough, I was at
Amazon's AWS Summit in London a while back, and one of the presenters was a
guy who'd worked on some European supermarket's automated warehouse fulfilment
stuff, using AWS. Automating delivery to consumer (ie self-driving vehicles)
is a long, long way off, and Amazon isn't a particular leader in the field
anyway. If it's ever workable, Tesco et al will just license it from Waymo or
someone. As will Amazon, probably.

And I think the ordering side is more important than you think. Doing a weekly
shop with Amazon's awful website would be a miserable process; Tesco et al are
already far ahead, there. I'm sure Amazon can catch up, but the idea that it
has first mover advantage (except maybe in the US) is ridiculous. The big
supermarkets also already have an extensive pre-existing warehouse system.

~~~
Kephael
I doubt they'll be able to compete on costs, on the retail front Amazon Go
style stores are certainly the future. Legacy retailers (and grocers) are
simply too labor heavy and their large retail footprint will come back to bite
them.

Even if last mile delivery has a driver, operational costs will be far lower.

~~~
rsynnott
My local Tesco (I apologise for all the Tesco references; they seem to have
totally taken over my area of Dublin) is a small urban supermarket with eight
automated checkouts, and typically one employee on a manual checkout for
people who want to buy alcohol and cigarettes, or who refuse to deal with the
machines. At peak times maybe two or three employees, but one is normal. Big
suburban supermarkets have a bunch of automatic checkouts, plus scanners for
shoppers to take with them and self-checkout as they put their purchases in
the trolley. Amazon Go type shops may be _slightly_ more labour efficient (if
they work) but there's no reason the big chains can't just do that, too.

Weirdly, when I was in San Francisco recently, I went to a Whole Foods (an
Amazon owned supermarket). It didn't have automated checkouts at all! I'm
unconvinced that Amazon is actually a leader in automated supermarkets.

RE the large real estate footprint, that's usually leased (at least here). As
demand for physical supermarkets drops, they can just stop renewing leases.

------
erikbe
Tech companies are valued based on future potential and as future becomes
present, that potential is replaced by a reality that is often much less
grand.

Netflix is a great example. It went from having a large library because the
producers were its friends, to entering production itself, and alienating its
former partners. Now, they have to offset investment into production with
higher subscription fees which in turn reduces future potential. Netflix in
2015 is significantly more disruptive than that of 2019, which is just another
HBO, and increasingly will be valued like HBO (Time Warner).

"Tech" here is actually just infrastructure; it's table stakes and not
interesting at all.

~~~
sgift
> Netflix is a great example. It went from having a large library because the
> producers were its friends, to entering production itself, and alienating
> its former partners.

I always thought it's the other way around and Netflix was in a "if life gives
you lemons" situation. The content producers in 2010 (or 2005 .. don't know)
didn't want to bother with digital, so they just gave it all to Netflix and
that's that. Then when time came to renegotiate the existing contracts (let's
say in 2015) the situation had changed: Everyone and their dog now knew that
digital was great, so half of them didn't want to give Netflix anything
anymore. They wanted to be a competitor and Netflix had zero leverage (e.g.
Disney), the other half now had a far better understanding of the value of
their digital catalogue plus was able to shop around "so, you don't want to
pay us our prices? Let us talk with Amazon over here ..".

At some point Netflix had to find a way out of that situation and while "we
produce our own content" may have a higher initial cost and is not what the
existing audience wanted in the long term it frees Netflix from their
dependency on competitors.

~~~
erikbe
Producing content does give Netflix independence, but on the flipside it also
means they stand alone. Their former partners are now competitors.

~~~
richmarr
My understanding of this is different. Streaming services are at the mercy of
the prices determined by those who own the content.

If they make lots of money, up go the licence fees.

The decision to create their own content seems like an inevitable consequence
of that, and acts as a deflationary force on prices as licenced content has to
compete for airtime with content commissioned by the streaming service.

~~~
erikbe
Producers are dependent on distributors, and distributors are dependent on
producers.

Producers thought they'd improve their position by going into distribution.
Distributors (Netflix) thought they'd better themselves by going into
production.

Perhaps they would have been better off focusing on either producing or
distributing. A distributor improves their bargaining position by growing the
audience they can reach. Producer, by making better films that more people
want to see.

~~~
dageshi
It won't work with Netflix's model. The flat rate pay x and watch as much as
you want doesn't work for the producers, the prices they can negotiate for
their content are always capped based on the fixed subscription at netflix.
Given that it's much more appealing for them to launch their own service and
get 100% of a smaller customer base which they can potentially grow in the
future.

~~~
erikbe
For Netflix, it doesn't work to only show their original productions on their
own platform. We will likely see them start to show their films in theaters to
maximize revenue, and even offer one-time access for people to watch a film
but not sign up for a subscription. What's more, they're probably going to
have to turn their series into events by showing new episodes on schedule,
once a week. By becoming producers, they are forced to completely abandon
their old model, I believe.

~~~
nordsieck
> We will likely see them start to show their films in theaters to maximize
> revenue

Seems unlikely to me. They're doing it on a very limited basis right now, but
that's not for revenue; it's to get the movies in the running for awards.

> offer one-time access for people to watch a film but not sign up for a
> subscription

Seems unlikely. The number of people who think Netflix is expensive enough to
avoid, and don't have friends they can mooch off of or get a group buy with is
pretty small.

> they're probably going to have to turn their series into events by showing
> new episodes on schedule, once a week.

I'm really curious about this one. I have no idea why they would possibly want
to do this.

In network TV land, broadcasters have time slots for shows so they can more
efficiently sell advertising slots. Even if Netflix decided to start
advertising, they can just tie ads directly to videos being watched.

~~~
javagram
> I'm really curious about this one. I have no idea why they would possibly
> want to do this

Traditional tv shows can also get buzz by people chatting and theorizing about
them week to week as the episodes trickle out. This isn’t really possible with
the Netflix binge model.

They can also release faster since episodes trickle out as they are done. Not
sure how often this happens vs editing and releasing later.

Whether this type of “buzz” actually is that important from an economic
perspective or if it just generates a bunch of noise online and at the water
cooler, I don’t know. So far Netflix seems content to drop content using the
binge model.

------
bitreality
"But if Netflix and Walt Disney both use technology to stream video, why is
only Netflix trading at infinity-times earnings? And if Tesla and BMW “both
use battery technology to power luxury cars,” Deluard writes, “why should the
former trade at 42 times forward earnings when the latter fetches 5.6 times
trailing earnings?” Good question."

Incredibly flawed argument. BMW's earnings come from a huge variety of
products and services. Not purely battery-powered electric cars. Tesla's
entire business model is producing battery-powered vehicles.

So to compare each company's P/E directly under the assumption that they are
both making identical products would be wrong. Instead you would need to
somehow isolate the P/E ratio of BMW's battery-powered car business in order
to draw a meaningful comparison.

In general, this article is trying to group all of tech into one basket and
draw conclusions which apply universally. A company has a high P/E ratio for a
very simple reason: investors believe its earnings growth will outpace the
market. That will seemingly always be true for companies which are focusing on
growth over profit.

~~~
JackPoach
You are technically correct, but the author still gets the important point
right. The premium in valuation between these companies should and will shrink
(unless there is a reason to believe that Netflix will kill Disney or that
Tesla will be dominating the automotive market at the expense of Fords and
Toyotas.

~~~
mlthoughts2018
The high P/E values for these companies are usually giant signals they are
overvalued.

Probably the only company that can legitimately sustain a ridiculous P/E is
Amazon, and it’s because Amazon is the only large company willing to try weird
shit and actually take product risks. I’m not a big fan of Amazon’s company
culture, but I have to hand it to them that at least they try to do shit and
see what works. Most companies beyond a certain size fall victim to in-house
risk aversion through manager ranks to such a high degree that all innovative
ideas are killed and only incremental product changes are allowed.

~~~
Retric
P/E is a backward focusing metric, stock price is a forward looking metric.
So, unless the company is static they don’t correlate that well.

Look a BMW’s shrinking US / EU sales for the last several years and compare
that with Tesla. You don’t want to pay a premium for a sinking ship do you?

PS: The stock market may be irrational, but it’s rarely dumb.

~~~
agroot12
BMW sales do not seem shrinking to me: They boast 35 consecutive quarters of
growth [1] and sold more cars year over year, at least in 2014-2017 [2], don't
know about 2018, as it's not yet in the statistics.

[1]
[https://www.press.bmwgroup.com/global/article/detail/T028306...](https://www.press.bmwgroup.com/global/article/detail/T0283066EN/35th-
consecutive-quarter-of-sales-growth-for-bmw-group?language=en)

[2] [https://www.statista.com/statistics/264342/global-sales-
volu...](https://www.statista.com/statistics/264342/global-sales-volume-of-
automobiles-of-bmw-group/)

~~~
Retric
Global numbers look fine, US and EU numbers don’t.

    
    
      US:
      2017	305.685	1,77%
      2016	313.174	1,79%
      2015	346.023	1,98%
      2014	339.738	2,06%
    

Looks like 2018 numbers are up slightly in the US, though still below 2016
sales.

2018 311.014 1,79%

[http://carsalesbase.com/us-car-sales-data/bmw/](http://carsalesbase.com/us-
car-sales-data/bmw/)

------
cs702
I find these passages thought-provoking and persuasive. They ring _True_ :

 _> ...Tech died by conquering the world. Netflix is leading a global
transition from linear to streaming television. Tesla accelerated an electric
awakening among auto companies. But if Netflix and Walt Disney both use
technology to stream video, why is only Netflix trading at infinity-times
earnings? And if Tesla and BMW “both use battery technology to power luxury
cars,” Deluard writes, “why should the former trade at 42 times forward
earnings when the latter fetches 5.6 times trailing earnings?” Good question._

 _> ...Some of the largest tech companies have exhausted their main markets.
Apple and Samsung may have reached the smartphone plateau, as phone sales seem
to have peaked. Facebook and Google have grown to dominate digital
advertising. But in the U.S., overall ad spending has historically averaged no
more than 3 percent of GDP. How do you grow [faster than the economy] in a
sector that isn’t growing [faster]? That’s easy: You don’t. There may be a
Malthusian trap in the attention economy. Eventually, revenue growth bumps up
against the natural limitations of population and waking hours._

 _> ...Tech stocks have fallen, because the media mountain has been scaled.
Now the largest tech companies aren’t standing at a pinnacle; they’re plotting
on a plateau. The challenge of owning the entire life cycle of our spending
habits—that’s the real summit. And it’s just up ahead._

The implication for investors is obvious. If "tech" is no longer really a
separate fast-growing sector, but rather something that has become pervasive
and cannot grow for much longer at a faster rate than the rest of the economy,
then "tech" valuation multiples will converge with "non-tech" valuation
multiples, and there will no longer be a clear-cut distinction between the two
groups.

~~~
mortenjorck
It’s a cycle.

Everything begins as tech, and ends as just another part of the economy. Heavy
industry was once high-tech: Ford was the biggest tech giant of its day. Even
something as basic as steel manufacturing was once novel technology.

Technology is only innovation which has yet to reach ubiquity.

------
Traster
I'm a big fan of the argument that there is significantly less to
differentiate companies like TSLA from their traditional competitors. Which is
basically the take from the first half of the article (which I think the
author is arguing is wrong), but using evidence like P/E change in the last
two years is quite frankly bollocks. There has been a big dip in the stock
market in the last few months and there's very likely a slow down in China
occuring - Apple's stock alone is down 30% from peak.

But moving on to the interesting second half: what this guy is describing -
yet somehow not noticing - is a trend towards massive mergers to form
monopolies. That's nothing to do with Tech. In fact what this article is
suggesting is basically what we're going to do is re-create all these
destructive monopolies and rather than protecting consumers like we used to,
we're going to just label it 'tech' and bend over for it.

~~~
SuoDuanDao
I'm not sure I agree - I think workforce is the ultimate differentiator in any
case, and the tech companies - over the last decade at least - managed to be
seen as the employers of choice. That could really create a strategic
advantage, though perhaps not a long-lasting one.

------
netcan
This article is using its terms in a specific way. By "tech sector," it sounds
like he's talking about large technology companies that have been valued by
the market at higher multiples than the older "blue chips," big stable
companies.

By Malthusian, he means "large and mature enough to be limited by the size of
the market."

The trigger for the thought seems to be that some newer "tech" companies are
operationally more similar to traditional blue chips. Tesla is more like BMW
and netflix is like hbo.

So, anyway idk....

Tech is valued so highly for a bunch of reasons. But, those aside, there are
factors unrelated to sector.

Tesla, netflix and such are new companies. Coca Cola, GM & BMW are old. They
run gradualist, conservative starters.

Netflix and Tesla are far more likely to pull a rabbit out of a hat. It's in
their culture. The whole company was in the hat 5 minutes ago. Assuming that
Tesla and BMW have similar future potential is (perhaps) academic, because
they'd never pursue them anyway. Netflix might attempt a pivot to being a game
company, if the opportunity was attractive. HBO probably couldn't.

Even IBM is a good example, the one tech company that's old-ish and has a
"blue chip" persona. They managed to pivot into consulting. Would coca cola
have successfully pivoted into fresh food delivery?

There's a flexibility in tech that doesn't exist elsewhere.

Also, I suspect, the way most large companies are growing is overly risk
averse. Tech can't be derisked to that extent, so the companies pursue the
higher value, higher risk strategies.

The best example to sum this up is Amazon and their 2nd act Aws twist. You
might compare amazon of 2016 to other retailers. Walmart never had the
potential to launch an Aws.

When tech is everywhere, the article thinks the tech sector doesn't exist. The
opposite is possible too. When everything is tech, the tech sector owns
everything.

Ultimately, coca cola is a legacy company.

~~~
pbhjpbhj
Did you mean "compare Amazon of 2006", that was the year AWS was released.

~~~
netcan
yep :)

------
todipa
Tech has been synonymous with growth. That is why it was trading at a premium
and that is why high growth tech companies continue to be priced at a premium
while non-growth tech companies do not.

As a professional investor, I only care about three things: \- Long-term
stabilized return on capital \- Pricing (P/E; EB/EBITDA) \- Long-term growth.

The list of companies that check all of those boxes are extremely small

~~~
theosophist
Would you mind sharing the list of these companies?

~~~
apapli
I’m not OP, but Microsoft is one of a handful of stand out tech companies for
me. They are paying a decent dividend (almost unheard of in tech) and have a
very solid enterprise product lineup that has gained traction, with a huge
amount of the market left. Furthermore they have a strong consumer and gaming
footprint, and generally are positioned well across their entire portfolio.

------
taurath
This is one of those articles that feels like it’d be unthinkable a few years
ago - now there’s a lot to nod along to like this is almost common knowledge.
It’s a big deal! This is the “crunch” in the tech sector - expect a fair
amount of qualified engineers in the streets competing for work in the next
few years. Not out of some downturn, but as investors demand cost cutting
instead of investment to get their returns.

The only good news is that the “surviving” companies from old industries will
continue to need to grow their tech platforms.

------
buboard
> Now it has to gnaw through the harder, crunchier parts of the global
> economy. Software eating life sciences? Software eating elderly care?
> Software eating household construction? Software eating money? Good luck.

Wow, so much pessimism. Tech has still loong way to make inroads into these
sectors, and i don't see anything stopping it. In some cases it is harsh
regulation and established interests that prevent people from innovating (e.g.
money), but it _is_ happening. "Good luck"? this won't age well. Anyone who
thinks that tech is just for "selling ads" is , hm, short-sighted.

It is easy to cherrypick the high tech that has large p/e s such as tesla and
netflix, but these are companies that disrupt existing markets, not create new
ones. Apple (which does that often) has a tiny p/e. So maybe, it is a good
thing that the fangs are being deinvested. Plus 2019 is the airbnb and uber
IPO...

------
tim333
It's the way of innovation that the new sector if successful grows rapidly and
then plateaus when everyone has the new whatever. The web/mobile tech
companies are not the first. The early motor car tech boom in the early 1900s
looked similar, then the electrical tech boom I think around the 1920s and so
on. I imaging the early industrial revolution and textile companies in England
went the same way and I guess maybe AI is next? I'm a bit of a skeptic on
blockchain being the next big thing.

------
RestlessMind
I wonder why the author does not include Cloud services in his analysis. Cloud
is just getting started, has massive potential (business IT spending), can be
delivered online (duh) and can be shown to be done effectively. Which is why
you see lots of big tech co's investing massively there.

To borrow author's words, I believe for the next round, profitable tech
companies will be Cloud providers (along with a Mall too), which will justify
rich premiums.

~~~
whorleater
One could argue cloud services is just a mall for computers (VMs), computing
services (managed databases), or computing time (serverless offerings).

------
mark_l_watson
I agree that tech companies depending on attention will devalue. However the
value of companies is also based on expected future value and the FANG
companies are well positioned to profit from advances in AI, new energy
technologies, life extension tech, etc., etc. I think there is a lot of profit
to be made in emerging tech.

------
JackPoach
Yep, the article is dead on.

------
simplecomplex
Malthus was wrong! Spectacularly so. Is the title a joke?

> If technology is everywhere, the tech sector no longer exists

Funny, because tech is everywhere and the tech sector is the biggest it has
been in history.

------
Emma_Goldman
Strange title. The connection to Malthus is tenuous at best.

~~~
CPLX
Seems pretty straightforward to me. The premise is that tech businessses have
exhausted the extant food supply for opportunities and growth and are becoming
constrained by hard natural limits. Seems like a spot on metaphor to Malthus.

~~~
kaffeemitsahne
Sounds more like plain old market saturation to me, if you describe it that
way.

