By Hendrik Jandel and Ezra Konvitz

Predictions for an unpredictable year

2020 was disappointing, to say the least. As we’re kicking off the new year we’re pretty confident about two things: 1) many of the changes we saw in 2020 are going to stay and 2) things are going to get better in 2021. COVID-19 has been a great accelerator in the transformation from an industrial to a digital economy. But what will drive innovation in 2021, and what are the consequences? Here are a few thoughts to get your year started.

We believe there are three key drivers of innovation in 2021:

COVID-19, aka it ain’t over til it’s over: As the year kicks off, the biggest immunisation campaign in human history is getting started and we’re seeing hopeful pictures of people getting the vaccine everyday. However, there’ll be a long hangover. It’ll take months until enough people have the vaccine and that we can significantly reduce COVID restrictions and mingle in offices, restaurants and concert halls again. The habits we all got into in 2020 are also not going to disappear overnight, and some, like WFH in your sweat pants, will probably never go away.

Politics, aka the reason why canceled family gatherings aren’t all bad: The pandemic and political events last year have accelerated the ongoing politisation and polarisation of our society, resulting in record turnouts during elections, protests and putting a spotlight on what’s happening in the world’s capitals. Over the last decades, politics wasn’t really a thing that concerned your average Silicon Valley entrepreneur. Now, absolutely everybody and everything is political by default, including Big Tech, VCs and start-up brands. The years of laissez faire are over in Silicon Valley, and there’s some significant regulation (and increasing self-regulation) coming that way.

The climate crisis, aka the second most popular existential threat in 2021: Once COVID-19 is defeated we’ll hopefully all have more headspace to focus on the other, arguably more decisive existential threat to our way of living — the climate crisis. We’ve seen corporates and governments committing to some pretty radical environmental targets, and we see a clear preference shift in consumer behaviour to products with a smaller ecological footprint. But as with new year’s resolutions, the commitment is the easy part — 2021 is the year where corporates will have to come up with credible plans on how to get there.

So far, so good. But how do these things actually change our economy and way of living in 2021? Let’s dive a bit deeper into it, shall we?

COVID-19: What’s going to stay and what will bounce back?

By the time COVID-19 restrictions are no longer strictly necessary we will have practised new behaviours for well over a year — enough time to figure out the actual benefits and costs to things like virtual work environments and conferences, online shopping and all these other joys. So which of those things are going to stay and which old behaviours will come back? Here are a few examples:

Virtual workplaces: People will eventually go back to offices to benefit from the serendipity that comes with bumping into someone in the elevator, overhearing a conversation or popping out to get a flat white. We’re social creatures and like to mingle, and the pandemic hasn’t changed that. However, employees will want to keep their flexibility and the many benefits of being able to speak to anyone around the world at a click of a button. Especially large, global companies that operate in many different countries will continue to interact primarily online. Offices will be used as hubs for meetings, and to give you a reason to put on some jeggings every now and then, but won’t be nearly as central to how companies operate as they used to be. As a result, the HQ will be virtual and companies like Zoom will increasingly position themselves as platforms for all types of collaboration tools, going head to head against Microsoft, Google and others who want to own the virtual work environment — or be acquired (cue antitrust lawsuit). The big losers are commercial real estate owners who will have to become creative to deal with the ongoing and lasting demand shock.

Travel: It took a pandemic to realise that you don’t have to travel across town or to another country for every meeting. Any meetings that are purely transactional will be done remotely. But there are still lots of benefits from actually getting together in person from time to time to build relationships and these will still require travel — just the focus will shift to spending much more quality time together. Hotels should be prepared to offer more than just a bed. People will also expect something different from going to a conference: trade shows will focus more on connecting people and providing room for personal interactions, and less on keynotes and panels (that can be done online). The big winners are those who provide the virtual space for keynotes and panels (Hopin being the breakout superstar of 2020) and other formats like podcasts that provide similar value (Big Tech is betting big on it).

The high street vs online shopping: You can get anything you want delivered to your home these days and most of us have made use of that during the pandemic. The share of people using online delivery has increased dramatically (Ocado is expecting online grocery shopping to double its market share in the UK) and it’ll likely grow even after the pandemic. This puts restaurants, retailers and coffee shops at risk of a slow but painful death. But there’s hope for the high street: most of us who have been stuck at home are desperate to go out and might create a new roaring 20s. But to get us out of the house we’ll look for a great experience that isn’t just functional, something that doesn’t translate to delivery — whether it’s discovery, service or ambiance. However you cut it, average retail is over (and good riddance).

Key takeaway: No matter what vertical you look into (food, travel, education, sports, leisure activities) there’s a strong trend towards the commoditisation of purely transactional behaviour — whatever can be done online will be done online. But the high street is not dead: the upper market segments in many industries will compete on unique experiences and specialisations, something that is hard to get online. For many companies, it’ll be a mix of commoditised online transactions combined with high-end experiences at a premium.

Politics: Everything that can be politicised, will be politicised

The politicisation of everything: The recent shocking events in the US show that the populist nightmare is far from over: The Western World will stay massively polarised in 2021, divided broadly between nationalists and globalists and the values and politics that come with these world views. Public figures outside the political sphere (corporate execs, famed entrepreneurs, athletes, artists) have mostly managed to stay apolitical in the last couple of decades but that’s definitely over, as recent moves from corporates and Big Tech have shown. Expect more strong statements a la ‘vote the a-holes out’ (brought to you by Patagonia). We will see political actors trying to get on every social platform, including online games, to reach voters (e.g. AOC on Animal Crossing) and sports teams or entire leagues will take sides on pressing social justice issues. Consumers will become very aware of where brands stand on some of the biggest questions of our time, and where they spend their advertising dollars and CSR budgets. More brands will voice their opinions- because especially in the eyes of younger consumers, silence is a statement too. And with the political system disarrayed, consumers will demand that corporates play a role in tackling some of the biggest challenges of our time.

Big Tech’s cat-and-mouse game: 2021 is not the year that Big Tech is broken up, at least not with a big bang following intense antitrust hearings. But it’ll get tougher for them to justify their monopolies and lawmakers are pressured to take serious action. The EU will lead the way and enforce more data sharing (a la open banking). Amazon might be forced to create more spin outs with real (American) Chinese walls between the different businesses. But those who run a social media business will have to worry the most, facing enormous criticism from both sides of the political spectrum. They’ll be forced to take on a role that they never wanted — being an actual publisher and moderating content. And they’ve started doing just that, showing their hand as companies (ie not public resources) and banning a sitting US president from their platforms. Whether they believe a line has been crossed, whether it’s anticipatory obedience, whether it’s right or wrong — you can make up your own mind. They certainly know that the Biden administration will work on creating stricter rules, and will also not shy away from calling monopolists out and launching antitrust cases against them. Big Tech CEOs have already accepted the inevitable and will start working with regulators in an effort to shape regulation (read Sundar Pinchai’s interview in the FT), while continuing to make the age-old case that their markets are ‘actually much bigger than what’s assumed and they only own a fraction of these markets’. Yeah, right.

China vs US (vs EU): Another argument from Big Tech against antitrust regulation will be that they won’t be able to compete with Chinese tech giants if they’re too small, and they will touch a nerve with this narrative. Tech is a crucial asset in the ongoing cold war between China and the US and no one can afford to give any of these away. Chinese State-Capitalism has produced massive companies that are innovating at breakneck speed, leveraging a huge market and monopolistic positions. They’re now in direct competition with their Silicon Valley counterparts (TikTok reached 100m+ US users in 2020) and governments on both sides will do what they can to back and protect their homegrown companies in this battle. And where does that leave Europe? It’s true that Europe is currently falling behind when it comes to creating massive tech companies with global scale. But with a protectionist battle intensifying and more questions around data privacy and malpractice emerging, there’s an opportunity for Europe to provide alternatives. There are already strong signals with more VCs setting up shop in Europe, VC investments in Europe at record level and growing ticket sizes. Combine this with more political and social stability and some smart regulation around data sharing and Europe might actually have a shot (some great slides from Benedict Evans on this here).

Key takeaway: Being apolitical is no longer an option, whether you’re a venture capitalist, entrepreneur or corporate leader. Both at home and abroad, politics will shape markets, consumer demand and regulation. You might want to keep an eye on what’s going on in capitals around the world — and bet on European Tech.

The Climate Crisis: Time to act

Most corporates have by now pledged to transform their businesses to be more sustainable; some have committed to become carbon neutral (e.g. BP looking to become carbon neutral by 2050) and others investing heavily into more sustainable products (e.g. Unilever’s push for all things plant-based). And you don’t have to be a cynic to think that this is not only driven by a desire to do the right thing. In fact, corporates face something of a perfect storm when it comes to sustainability and it’s imperative for them to act for three key reasons:

Shifting consumer demand: Consumers are increasingly aware of the externalities of consumption that are not necessarily reflected in the retail price they pay. There’s an increasing demand for information on the actual price tag of products for the environment and society in general. But because it’s often difficult for large corporations to provide this level of transparency and to make data easily digestible, it all comes down to trust. Consumers don’t necessarily want to understand every single detail behind global supply chains but they want to trust that the brands they buy are doing the right thing.

Shareholder pressure: Blackrock CEO Larry Fink couldn’t have been clearer in his letter to CEOs at the beginning of last year: all companies in their portfolio are expected to take drastic measures. And while public markets are still rewarding short-term profits over long-term sustainability, more institutional investors are betting that those who fail to transform will see shareholder value decline in the long term (side note: we were really impressed by the launch of Eric Ries’s Long-Term Stock Exchange (LTSE) that is trying to overcome short-termism, let’s hope it succeeds). But while consumers are looking for indicators that they can trust brands they buy, asset managers are looking for hard data on key sustainability dimensions to drive investment decisions.

Regulatory requirements: Shareholders are also worried about corporate sustainability agendas because they know more regulation around emissions (e.g. carbon pricing) is inevitable. Governments will hear the clock ticking louder and louder: 5 years after the Paris agreement was signed, current commitments are still not aggressive enough to reach the targets governments agreed on. With the US expected to come back to the table there’ll likely be more momentum and corporates will soon face new rules and regulations. Better to stay ahead of the game on this one.

Key takeaway: Corporates face a perfect storm when it comes to sustainable transformation. Soon, they’ll have to show hard data to shareholders, regulators and consumers about where they stand and what they do to fight the climate crisis. The only way to get where they need to go is by leveraging technology & innovation and being open to collaborate.

So 2021 is off to a ‘interesting’ start, with never-ending lockdowns and so many challenges ahead. But there’s lots to look forward to in 2021: thousands of people around the globe have been vaccinated while you read this, there’s more and more exciting technology coming out of stealth mode that will help to tackle the ongoing climate crisis and recent elections might have opened a window of opportunity for meaningful change. Call us naive, but we’re very optimistic about 2021 and can’t wait to see where it’ll lead us. Bring it on!

Happy New Year!