Capitalism is one big competition.
Businesses competing for marketshare. Investors competing for returns. Brands competing for attention.
It’s always been this way. But the world is changing.
A ten-year-old with a smartphone now has greater access to information than many professional investors did 20 years ago. Businesses can reach more customers with a free Twitter account than they used to be able to on an expensive billboard.
As access to information proliferates, competition shifts directions. A key part of this is realizing that some skills are increasingly cheap (ubiquitous and commoditized) while others are increasingly expensive (rare and valuable).
Here are two I think about as an investor.
Marketing is increasingly cheap. Trust is increasingly expensive.
It used to be hard to get your name in front of crowds. Getting tens of thousands of people to see you took some combination of luck, connections, or deep pockets. And since few people caught the crowd’s attention, crowds had a lot of attention to offer when you did.
That’s no longer the case.
Spam, Twitter, Facebook, YouTube, Instagram, and Google Ads have drastically reduced the cost of getting noticed, sometimes to zero.
Attracting eyeballs no longer sets you apart. Building trust among those who have their eyes on you, does. Getting people’s attention is no longer a skill. Keeping people’s attention is.
As a business, keeping people’s attention requires a combination of being transparent in what your product is and how it’s made, open about your mistakes, and, above all, putting the majority of your effort into the quality of your product, rather than the volume of your marketing.
Gathering information is increasingly cheap. Filtering out noise is increasingly expensive.
Thirty years ago businesses and investors were desperate for information. Consumer surveys, economic data, testing different versions of a marketing campaign – these things were hard to produce, often having to be done by hand and taking weeks or months to finish. What little data you had was precious.
Big Data has flipped this around.
The Federal Reserve publishes 470,000 separate economic data sets, online and free for anyone to use. Yale economist Robert Shiller has published a detailed, monthly history of the stock market going back to 1871. The SEC publishes quarterly and annual reports for every public company in America. Data brokers have billions of data points on how consumers shop, react, and view all aspects of the economy.
We’re lucky to have so much data. But it has a nasty downside.
“With big data, researchers have brought cherry-picking to an industrial level,” writes Nassim Taleb. There’s so much data these days that a skilled analyst can “prove” nearly anything they wish – fooling themselves as much as anyone else.
If having information used to be a skill, knowing what to do with it is now the hard part. It requires a combination fitting data to a logical narrative, questioning your own narrative assumptions, and taking conflicting studies as seriously as you take your own.
Which is extremely hard. As most profitable skills should be.