Social distancing: a temporary measure hastening a long-term trend
Tom Morris from the Global Team considers the web of businesses that have made the current era of working, learning and socialising from home possible.
During an especially challenging time for the world, we can be grateful that collaboration has never been easier. ‘Self-isolation’ is only physical – the internet, and the services built on top of it, allow many of us to stay in close contact, to work, to relax, to learn and to play, without being in the same place.
While a ‘face-to-face meeting’ used to mean being physically in the same room as someone else, now such contact happens all the time across countries and continents, via services like Skype, FaceTime, WhatsApp and WeChat.
Majedie has always been a cloud-based business, and over the last couple of weeks, while working from home, this has allowed us to carry on doing our jobs with minimal practical differences versus being in the office. We are continuing to meet virtually with companies and clients, and discuss our thoughts and share insights via Teams and Skype for Business (both owned by Microsoft), Bloomberg and Tibbr.
In our leisure hours, like many people, we and our families are turning to streaming services from Amazon and Netflix, video games from Take-Two Interactive and EA, grocery delivery from Tesco, and social apps from Facebook. One member of the team, keen not to give up pub quizzing with his friends, took part in a video-conference quiz on a recent Tuesday night using Zoom.
While the importance of online collaboration tools is heightened at times of crisis like this, increasing collaboration between people and businesses is a key long-term trend that started well before, and will continue long after, the coronavirus pandemic.
Brands have long understood the power of cross-marketing – look at things like Rolex’s position as the ‘official timekeeping partner’ of the Wimbledon tennis championships, a role it has occupied since 1978. The link enhances the perceived prestige of both. The champagnes offered in the business and first-class cabins of major airlines are part of similar symbiotic relationships, making the airline seem more glamorous, and the drink more jet-set. The posh soaps and shampoos in five-star hotels serve to make the hotel itself seem more upscale and desirable, while also placing their brand into the minds of guests enjoying high-end trips.
A newer idea is the ‘high-low’ collaboration between designer and high street brands. H&M was one of the first to recognise the power of such partnerships when it launched its first designer capsule collection, with Karl Lagerfeld, in 2004. It sold out in minutes, enhancing H&M’s fashion credentials while introducing Lagerfeld to a younger group of consumers who would go on to become fans of his work at Chanel and Fendi. Such was the success of the exercise that H&M repeated it many times over the subsequent years, working with designers like Versace, Roberto Cavalli and Alexander Wang. H&M proved to the rest of the fashion world that high-low partnerships did not trivialise the designer brand, but instead brought it legions of new, young fans. Other retailers followed, with even Primark launching a collection from the trendy British designer Henry Holland in 2018.
The next logical step was taking lower-end brands and plugging them into high-end designer crossovers. Rather than making the high-end affordable as with H&M, they made the lower-end exclusive. Gucci (owned by Kering) is doing this at the moment with its Gucci x Disney collection. Louis Vuitton notably did it with its LV x Supreme collection in 2017, where the hot streetwear brand lent its youth appeal to Louis Vuitton at extremely high price points (that still sold out in a flash). More recently, Louis Vuitton collaborated with League of Legends, the wildly popular video game owned by Tencent, to launch a collection of physical clothes along with virtual outfits for characters to wear in the game.
As well as big brands, the internet allows people with niche interests to find each other, interact, and collaborate. Reddit hosts active communities on over 100,000 topics, ranging from slow cooking (1.9m members) to fountain pens (152,000 members). Creative writing has been transformed by the internet – Archive of Our Own, a fan-fiction community site, has 2.4m registered users and regularly gets over a billion pageviews per month.
Communities can grow large enough that collaboration moves from being person-to-person, to being person-to-system. An example would be the star ratings that Google and Booking.com give to hotels and shops based on the votes of thousands of users. Users can get the benefit of the collective judgement of large communities without having to know or interact with any of them. Hyperscale aggregation of community knowledge is a powerful asset, and the foundation of very attractive businesses. Even the core of Google, search, is a form of community collaboration as it takes data points from the behaviour of other users as key inputs to its ranking algorithm.
Education is an area ripe for modern collaboration tools, as evidenced by the success of online courses delivered by New Oriental Education and TAL Education in China. As the world moves into a period of social distancing, with widespread school closures, many other countries will be looking to China for examples of how education can be carried out online not just to the same standard as in a physical classroom, but superior to it.
Regular readers of our newsletters will know of our enthusiasm for video game companies. We think they represent the future of media, with the boundaries increasingly blurring between physical and virtual socialising and sports. With people around the world spending more time at home for the foreseeable future, video games represent not just entertainment, but an escape. The most successful games are now predominantly delivered as digital downloads, with ongoing content updates and vibrant online communities – think Grand Theft Auto Online, Fortnite, FIFA, Mario Kart and Apex Legends. The gaming companies we hold typically have net cash balance sheets, established franchises, and top-notch creative talent.
Looking at the years ahead, we think that this crisis will accelerate many of the trends we were already seeing, like gaming, streaming, fintech, online chat and collaboration, ecommerce and next-generation bioscience. We have constructed our portfolios with those trends in mind, and will use the current market turmoil as an exciting opportunity to pick up shares in attractive companies at knock-down valuations.
Finally, we would also regard our own Global Team as an example of modern collaboration: three fund managers with different approaches, able to work individually and come together as a team to build diverse but concentrated portfolios of companies. We think about things differently, challenging each other and resisting groupthink, always looking for opportunities where we see the long-term risk/reward tilted in our favour.