By Baillie Gifford, the investment manager of the Vanguard Active Global Growth Fund
Baillie Gifford’s Research Agenda, which is updated annually, provides a framework to help guide the hunt for unrecognised growth opportunities and where the existing portfolio requires the greatest scrutiny to keep the portfolio fresh and full of future potential. In 2020, companies offering digital services to consumers are on this agenda.
The digitising of news, social interaction, gaming, retail, TV, music and films has been a helpful tailwind to a significant proportion of the portfolio over recent years. New business models offering near-unlimited choice, with ever-increasing convenience, have taken significant share from slower-moving incumbents. This year we plan to test how far we are through this revolution. Will maturity dull the growth outlook for businesses such as Facebook, Tencent (owned through Naspers) and Netflix? Might excess supply and growing competition for our time hurt their prospects? Which companies still have the greatest opportunities?
We believe that there are some early indications that excess choice could lead to paralysis. In e-commerce, 25 per cent of Amazon Prime day shoppers reported being ‘overwhelmed’ by the number of product offerings in a 2019 study. When there are over 100,000 listings for something as simple as coat hangers, one can see their point. Similarly in media, an average of a billion hours of YouTube content is watched globally every day. This would take 100,000 years to watch in one sitting. And do many of us realistically do more than just scratch the surface of our Netflix subscriptions?
One helpful way to think about these evolving dynamics across a wide variety of industries is through the lens of companies battling for the limited time and attention of consumers.
What happens when there are too many products to buy, too much music to listen to, too many films to watch and too many games to play? There are now so many reviews to help with product and media decision making that they may be contributing to this overabundance. How will consumer behaviour change in the face of this? What will be the impact of new consumer interfaces such as virtual home assistants? What’s the right way for businesses to adapt to retain their attention?
Our early working hypothesis is that business will have to adapt to retain customer attention. Superior distribution and choice may be little more than competitive ‘table stakes’ in retaining the attention of consumers. Instead, the quality of content, superior customer service, exceptional recommendation engines, trust and media curation become the ways to compete and stand out. Our suspicion is that from a consumer perspective, simplicity will rule. Delivering this will be complex, but it is where the battle will be won.
*Facebook holdings are incorporated in the Global Alpha strategy (underlying strategy for the Vanguard Active Global Growth Fund).