Commercial dynamics
The volatile economic outlook means a more uncertain growth trajectory for many digital consumer businesses.
Centaurs are the new mythic heroes of the tech world – signalling a shift towards recurring revenue and profitability as market indicators of success. Value creation over valuation. But there remain routes to growth for those who can harness the power of community and make bold choices.
Source: McKinsey
An estimated
of new value created in the economy over the next decade will be based on digitally enabled platform business models
Source: World Economic Forum
Shift strategy from growth at any cost
The past few years have been good to tech companies. They've benefited from a wave of venture capital, with $621 billion invested globally in 2021. This capital has supercharged their growth, letting them scale up, hire freely and subsidise their products so they don't pass costs onto consumers.
Profitability hasn't been top of the agenda – as long as they could demonstrate growth, future funding looked easy to secure and no one was too worried about negative unit economics.
Now the future's not looking so rosy. Inflation continues to pose a problem, the war in Ukraine goes on, and we are in the midst of an economic slowdown. As a result, investors are curbing their risk appetite. As Sequoia commented recently, while easy access to capital and high valuations were the norm in 2020/21, given rising interest rates "money is no longer free".
Global VC funding fell 34% in Q3 2022 to $74.5billion – its lowest level since Q2 2020
It's been said for years that focus needs to shift away from growth at any cost. But to a degree companies have been able to ignore warnings because investment flowed freely. Now the future looks increasingly uncertain, those who've failed to ask serious questions about their sustainability may find themselves swiftly running out of runway. It's a classic ant vs grasshopper situation. Those who prepare for the worst will survive – and those who don't, won't.
Author
Josef Fuss
Partner
As part of this, you should be focusing on a few immediate priorities.
Build a happy hardcore
Keeping customers coming back is essential to long-term success – helping businesses shape must-have services, drive adoption and road-test technology.
With consumer trust in business at a low, engaging customers and users as brand evangelists can be a powerful platform for growth and a strong source of competitive advantage.
of consumers are more likely to return to a brand that creates a strong online community
Source: Amity
of branded communities say that the community has had an impact on customer retention
Source: Vanilla
The evolution of communities
The concept of community has played an essential role in brand value, market share and financial success of consumer facing businesses, fostering a sense of collective enjoyment, exclusivity and loyalty to the brands and products they buy.
Technological advancements over the last decade have created an even greater opportunity to access and engage with ‘community’. Social media, big data, gamification and the influencer economy (to name a few), have given brand evangelists a louder voice, a bigger platform and a more targeted reach. Here we reflect on how communities have developed over time and consider what lies ahead.
2020 and beyond…
NFTs go mainstream!
Collectors pay for the rights to snag digital art, with collections like Bored Ape Yacht Club providing benefits for ownership like access to exclusive events, commercial usage rights and early access to future collections. Businesses bank on virtual and augmented reality as the next big, investing heavily in the metaverse and Facebook even rebranding to Meta.
The future
What's the future of community?
The current consensus seems to be community-orientated experiences that bring people together online. For brands to meet and engage their consumers as they spend time in emerging digital spaces. The possibilities are endless. We've already seen virtual concerts taking place, metaverse-specific offers and promotions, and metaverse fashion taking off.
Brands will also be able to sell to new audiences, free from geographical boundaries. But if brands are to continue along the current path and build virtual worlds of their own, there are a number of challenges to be tackled.
Moderation and protecting users
Online anonymity has led to abuse for years, with limited success in tackling it. And that's just with trackable media, like text messages and posts, images and videos. With immersive virtual worlds and experiences looking like the future, what happens when bad behaviour is unleashed into a world where anything is theoretically possible?
Metaverse enthusiasts envision a world of creativity and exploration. But the reality we've seen from social media is quite different. Virtual worlds will introduce a variety of interactive formats mirroring the real world – not only text and media-based but voice chat, gestures, and bespoke experiences based around custom user-generated content.
If brands are to protect their users and reputations in a virtual world, they'll need to build sophisticated moderation technology to ensure users feel safe.
Privacy and data
While there's no current metaverse regulation, as virtual worlds grow questions about privacy and data are sure to develop too. AR and VR devices, by their nature, will collect much more data than current methods used to access the web and give organisations access to more personal information than ever before. This will raise questions from consumers about whether their data is being used appropriately, and for brands about how best to protect users' privacy.
If exploring your own virtual experiences, make sure you're complying with existing regulation like GDPR, keeping up with new regulation and being transparent about the data you're collecting and for what purpose.
The power of community
Tessa Clarke OLIO
Tessa Clarke, co-founder of OLIO, discusses how harnessing the power of community has been integral to OLIO's growth.
Be bold in the pursuit of growth
Being bold when the future's unclear can be risky, but also rewarding. When Bob Iger took over as Disney CEO, he faced questions over whether he was the right person for the job. He knew he had to establish a strong vision for his tenure, and part of his strategy was to go big early, making big ticket acquisitions he felt would deliver future growth.
One of these was buying Marvel. At the time, the $4 billion price tag was considered steep and Disney board members were hesitant - but Iger's gut move paid off. The Marvel Cinematic Universe has now generated over $25 billion worldwide alone, and other studios have been trying to reproduce the Cinematic Universe magic ever since.
The Disney/Marvel acquisition happened in much smoother waters. We're now facing the war in Ukraine, unprecedented inflation and ongoing COVID-19 fallout. But it's still worth considering whether taking a risk now can pay off as part of your long-term strategy. A 2019 study by PwC found buyers who act fast in a slower economy could see higher returns. And EY analysis found companies who made a significant merger or acquisition during an economic downturn outperformed those that don’t.
Tandeep Minhas
Partner
