Fight for the Future

Pfäffikon SZ, Switzerland – The smartphone is in control. Anyone who knows how to get a spot on your smartphone screen is the lucky one. That the underlying company of the app has never earned money, does not matter apparently. Investors have great confidence in the future, stimulated by so-called seers. But can the old industry push itself away so easily?

Spotify is the latest example in which the listing will represent an immense value of the music streaming service. Once again a company is brought to the stock exchange which has never made a profit. The competition in the music industry is murderous, and it confirms another phenomenon. The person who produces the music is shipped off with a tip; we also see this phenomenon in more apps. The business model of restaurants, mobility, and temporary housing rentals also cracks. Most platforms represent a huge market value, but do not make a profit. Everyone knows that this cannot continue.

Arch rivals
Interesting is the recent collaboration between BMW and Daimler (Mercedes-Benz). For decades they were each other’s arch-rivals. However, a partial end is upcoming. The two German car manufacturers want to become market leaders in the field of new mobility services. Other activities the manufacturers will bundle are the development of apps for taxi services and apps that help the consumer to choose the right means of transport, to be paid with the same app. This not only concerns cars but also, for example, public transportation or air travel.

Powerful Signal
The 50/50 joint venture between BMW and Daimler is a powerful signal towards Silicon Valley. The old industry does not wait and forces parties like Uber to reconsider their intended goals. After all, the old industry still earns lots of money; only they are dissatisfied with their market value because the investor does not (yet) realize that BMW and Daimler are tech giants. By building a worldwide platform in-house, the car manufacturers keep a grip on their high premium product, and the market value is tacitly jacked. Sooner or later, the valuations of the platforms and the car builders crawl towards each other.

In my view, the move by BMW and Daimler is smart and courageous. Parties such as Uber and Lyft would be happy to participate in the plans of the old industry icons. Whether BMW and Daimler will allow this – after the bickering with Silicon Valley – is still the question. And also, it is a hard lesson for the futurologist. Never switch parties like BMW and Daimler in favor of Tesla or Uber, for example. The old industry knows very well how to fight given their more than hundred years of existence and track record.

It remains for me to wish you a good trading week.

Jan Dwarshuis is CIO at Thirteen Asset Management AG. Dwarshuis writes his columns in a personal capacity. Professionally, he holds positions in major European, American and Russian stock funds. The information in his columns is not intended as professional investment advice or a recommendation to make certain investments. At the time of writing, he has a position in BMW and not in the other above mentioned shares and has no intention of doing so in the next 72 hours.