My view is that the general tone of the future economy is that the virtual economy will develop steadily over the long term, while the real economy, although it will recover, will rise and fall like a roller coaster, and finally, when it tends to plateau, it will be much less important in the overall economy.
The development of the virtual economy and the real economy is not contradictory, but if we consider their share of the total economy, it will become a zero-sum game, because the total share of the two add up to only 100%, and there is a who is the main and who is the second problem, the sense of win-win is unlikely to be realized. Thinking about the relationship between the two, how we set their future career development direction will be very helpful.
The trend that can't go back
For a long time, there are always some people (including many economists) who think that the real economy is to do the right thing, and the virtual economy is just a bubble. 2013, when Google's market capitalization exceeded that of General Electric, I just happened to be in the middle of an international academic conference, and my friends in academia said that Google's stock price was too high, and that it was a bubble. Their point is that General Electric has built so many things, from the engines of airplanes, to medical equipment such as nuclear magnetic **** vibration instruments, and as small as light bulbs, how can it be less valuable than Google?
Today, even if you count General Electric, GE's customer Boeing, and the world's two largest and most profitable daily necessities companies, Johnson & Johnson and Procter & Gamble, their combined profits may not be as much as Google's.
I'm not sure if I'd like to see Google as a company, but I'd like to see it as a company.
When I analyzed the Silicon Valley economy earlier, I said that Microsoft, Amazon, Facebook, and other companies performed just as beautifully during the epidemic; but if you look at the real economy, you have to find a big company that performed well, and maybe Apple can be counted as half of that, again because half of its performance is in the virtual economy. In China, the situation is similar, Tencent and Alibaba performed well, but most of the big companies in the real economy are not having a good time.
Of course, many people may feel that this phenomenon is only temporary, and that the real economy will rebound in a big way when the epidemic is over, but I'm afraid that's wishful thinking. If you remember what happened after the SARS outbreak in 2003, you should be able to understand the saying that a lot of trends, once formed, can't go back.
A few years ago, Liu Qiangdong once talked to me about the process of founding his Jingdong online store. He said that at that time it was the SARS period, his chain of several computer retail stores in Beijing have no business, can only be advertised on the Internet to provide online shopping services. Customers could not leave their homes at that time, so they bought online. As a result, he found that this method is too good to save a lot of personnel expenses, not to mention, and every day, how much to sell, sold to where, at a glance, stocking and delivery is much easier. So wait until the end of the SARS epidemic, he is not to restore the retail store, but simply shut down the retail store, from now on to do e-commerce. In fact, the full rise of China's e-commerce industry is after the SARS outbreak.
The inevitability of technological development behind the rise of e-commerce
Many of us like to talk about the inevitability of history and look for inevitability. Why did e-commerce gradually replace most of the traditional stores? The fundamental reason behind this is actually a kind of inevitability caused by technological development. Specifically, it is the replacement of energy with information. I have talked a lot about the relationship between these two in my course Outline of the History of Science and Technology.
We can look at traditional retail and e-commerce in comparison from this perspective. The most basic model of traditional retailing is the same for every customer who goes to a store to buy something, whether that store is a shopping center in town, a warehouse hypermarket in the suburbs, or a factory outlet store. In the U.S., the amount of energy expended on shopping is easily calculated by the cost of the trip. For example, if you shop at a grocery store near your community, you spend about $30-$50 a trip, spend about $2-$3 on gasoline, and add the wear and tear on your car for about $5-$6, or 10-20% of the price of the item.
Of course, you can go by public transit, bike, or even walk, but that comes with a higher cost of time. As for the physical effort you spend on yourself, that hasn't been accounted for. So why do many people in the US like to shop at warehouse stores like Costco? Because by purchasing a large amount of supplies at one time in this way, the shopping expenditure will increase two or three times, but the energy consumed may only need to be more than doubled. In terms of purchases per unit of time and per unit of energy, shopping at a warehouse is very cost-effective.
So what is the biggest change in e-commerce-based retailing compared to offline retailing? It is to reduce the time and energy costs to a very low level, but in turn, it has to provide more information, and deliver more information on the Internet to attract their own customers. This is really information for energy. In the information society, a general law of development is information for energy, teleconferencing, the development of distance education, behind this reasoning.
However, in history, the inevitability of becoming a reality, often to chance events as an opportunity. 2003 SARS incident, is to trigger e-commerce this inevitability of chance factors. By the same token, this global public **** health event, I think, it is to trigger more real economy to the virtual economy transition of that contingent factor.
In the future, not only shopping, but also education, office, entertainment, may have a significant proportion is done in the virtual world. Whether a business, especially a traditional business that has relied heavily on the offline real economy in the past, is willing to accept the reality of industrial change and emphasize the direction of the virtual economy may well determine their fate in the future. I might as well show you a few examples of a couple of companies that I think have been doing just fine in this regard lately.
Virtualization transformation of traditional industries
In this epidemic, there is a traditional enterprise that has been less popular in the past, suddenly delivered a beautiful report card, it is Walmart. Walmart's traditional business model of opening large discount stores around the world represents the last generation of traditional retailing before e-commerce. As you can imagine, after the rise of e-commerce, Walmart is gradually going downhill.
But in the last two quarters, Walmart's sales have improved by 7.5%, which is a very impressive growth performance for a large company with a huge volume of annual sales (to over $500 billion) and a long history of stagnant sales growth. Walmart's growth performance is especially surprising when you consider that its primary customer base is a relatively low income group whose incomes have been greatly impacted by the epidemic.
In fact, the main thing that drove Walmart's growth was its e-commerce sales, which nearly doubled (97%) during the epidemic. And Walmart's rival Target, with a largely middle-class customer base, saw even more growth: Target's global sales grew 24% in the first half of 2020, with e-commerce growing at a whopping 141%.
With growth, naturally, comes decline, and we can see that a large number of brick-and-mortar stores and restaurants have closed during the epidemic, many permanently. A lot of this is a lack of determination to transition, such as several of Walmart's competitors, like JC PENNEY (Jesse Penney), J CREW (Jack Roe), these large retailers. Others are not unwilling to transform, but because their business is largely dependent on the reality of the scene, like Michelin restaurants, high-end department stores, such as Lord & Taylor (Lord Taylor) bankruptcy in August is the case.
It's not just business that's changing, but the entertainment landscape as well. Around the world, revenues from movie theaters have fallen to almost zero. So will the movie theater business recover in the future? It may be very difficult, and even if it does, things will change, and I think a large part of the studios' revenues in the future will come from the Internet, not from movie theaters.
In August 2020, Disney made an announcement that its new film Mulan would first be released online in the continental United States, rather than in the traditional way of releasing it in movie theaters first. This matter in the U.S. film and media industry in the spotlight, because it is seen as the future of film distribution of a new way. Movie theaters are trying to help themselves, and some of them are starting to show movies to homes via online as well. These theaters are caught between the studios and the audience, and may eventually be seen as chicken feed and eliminated.
Of course, you might be worried about whether online viewing makes any money, and we can look to Disney's pricing: $30 for a family to rent a movie for 48 hours of viewing, which is exactly the same as four movie tickets. Still, not all homes have cinema-quality sound equipment, but as online entertainment has become more popular, home theater sales have become surprisingly hot, and in the US it's up 700% this year over the same period last year.
Interestingly, while people are adapting to watching movies at home, they're also not forgetting the habit of eating popcorn at the movies: sales of half-finished popcorn baked in microwaves also increased dramatically during the US epidemic. Meanwhile, VR and AR research, which has cooled down, is back on the road, with the goal of constructing a virtual movie theater environment that makes everyone feel like they're watching a movie with friends, and artificially adds some of the ambient sounds of a movie theater, such as laughter.
The shift from the real economy to the virtual economy is not just happening in the individual industries mentioned above, but I think it will be an all-encompassing shift.
Two trends in economic development and industry iteration
We can look back at history and see that since the second industrial revolution, there have been two clear trends in economies around the world.
The first trend is the gradual decline of the cost of raw materials (including energy) as a percentage of the product. The widespread use of electricity, a new energy source, has led to a gradual increase in the share of value added by technology and labor in industrial products, with a decline in the share of mechanical products and a rise in the share of electronic products. In the information age, this trend is more obvious.
Noyce, who invented the integrated circuit, pointed out in the 1950s that the raw materials for future electronic products are sand and copper wire, and the key is the process, which explains the nature of the electronic industry in the information age. Today, although sometimes the price of certain commodities will fluctuate because of speculation, but the proportion of commodity-related output in GDP is getting lower and lower. This is the first trend
The second trend is that, in the global GDP, the proportion of visible and tangible products is getting lower and lower, and the proportion of virtual products and services is getting higher and higher. In the past, China relied heavily on real estate to drive its economy, which created a huge demand for physical goods, but this was only a short-lived phenomenon when it had not yet entered the well-off stage. In the middle and developed countries, the demand for physical goods is essentially constant, but the GDP of those countries is still growing, and part of that growth is in services, and non-physical goods like computer software.
In recent years, with the development of the Internet, many of the real economy industry is actually already struggling to support, just people are not quite willing to completely give up the past industry and the past habits, that is to say, inevitability occurs in the waiting for the chance of chance, and this time the opportunity has come.
For the real economy, many people feel that they help solve the employment problem, so they must be maintained even if the economic efficiency is not high. In fact, as technology advances, less and less labor is needed to produce the same physical goods, and in the long run, it is impossible to rely solely on the real economy to solve the employment problem. To solve the employment problem, it may be more necessary to vigorously develop the virtual economy. Of course, this does not mean that the total output value of the real economy will decline, only that its share in the national economy will gradually decrease as the overall economic plate expands. I suggest that if you are preparing to choose a career, you might want to consider this factor.
Finally, I'll also use this letter to say something that people often ask me - what to think about the traditional small retail economy. Here I give a hint, using the idea of information for energy, compare it with online sales which is more efficient, I believe you can find my answer.