Here's The Deck On 'Winners And Losers' Hedge Fund Managers Are Begging To See (2024)

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Nicholas Carlson

2014-09-25T14:22:00Z

Here's The Deck On 'Winners And Losers' Hedge Fund Managers Are Begging To See (1)

Back in May, NYU business school professor Scott Galloway gave a presentation at a conference in New York called DLD.

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It was called “Zero or One: Winners & Losers in a Digital Age.”

A senior industry source who saw the presentation told us we absolutely had to track it down and share it with readers.

It turns out we weren’t the only ones hot after “Zero or One.”

On the phone yesterday, Galloway told us that of all the presentations and reports he’s ever put together for his consulting firm L2 (“Business Intelligence for Digital”), “Zero to One” has by far gotten the most attention.

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People like the report because it’s blunt. It calls out stinkers.

Galloway told us he’s heard from about 50 hedge fund managers who wanted a copy. A few of them wanted to see which companies Galloway believes will be “winners" in the "digital age," so they could go long on them in trading.

More of the hedge fund managers wanted to see which companies Galloway thinks are “losers” — so they could go short and bet against them.

Galloway also heard from all of the “losers” he mentions in the report; each wanted to update him on their progress.

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It’s probably best to just dive into the presentation, but Galloway’s basic premise is this: Everyone thinks the “digital age” is a rising tide that will lift all boats. But really, it’s a shift in tides that favors a few super yachts and will leave everyone else stuck in the sand or worse.

With this perspective, he examines the players in three arenas: Social media, retail, and the world economy.

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Galloway believes the media focuses too much on winners of the digital age. There are also losers. His presentation first examines each in online.

Here's The Deck On 'Winners And Losers' Hedge Fund Managers Are Begging To See (2)

Galloway says that online, winners are image-oriented. People interpret imagery 50X faster than text.

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Companies like Google…

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…and Twitter are aware of the power of images, and are evolving around them.

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But there’s already a winner: Instagram.

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Instagram is a winner because its image-oriented and mobile-friendly. So are Line, WeChat, and WhatsApp.

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Galloway believes Instagram will soon be the world’s most powerful social network.

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Instagram has 15X the engagement of Facebook and 25X the engagement of Twitter.

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Galloway thinks Instagram might already be the most important social media network out there.

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Look at how much faster it’s growing than everyone else.

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Let’s examine some social media losers.

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Galloway believes Pinterest is an over-hyped “loser.” “They were the leader in the visual web, but they’ve been blown away by Instagram,” he says.

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Earlier this year, Pinterest announced a high-end customizable ad business and a self-serve ad business within 12 weeks. Galloway's says the confusion “reflects business immaturity.”

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Galloway says Twitter is a loser. It has tiny “conversion to purchase,” he says. It’s a $10 billion company, not a $30 billion company, he believes.

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Galloway believes Tumblr was the worst acquisition of the past five years, and that it will cost Marissa Mayer her job. He notes Yahoo didn’t even mention it during its last earnings call.

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Galloway’s presentation also examines winners and losers in retail.

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He believes in WeChat, the Chinese social network/chat application.

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He thinks WeChat is eating Sina Weibo’s lunch.

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Galloway believes Amazon is a winner because it is investing in the most expensive way possible for it to differentiate itself: giving customers exactly what they want. Startups can’t compete.

Here's The Deck On 'Winners And Losers' Hedge Fund Managers Are Begging To See (20)

Other online retail outlets build their sites around what they want, not what the consumer wants.

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Galloway says Amazon is building distribution centers right outside of metro centers.

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He says this is a big change for Amazon.

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Because of the investment, Amazon will be able to deliver “50% of everything in your life within 4 hours.”

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Consumers won’t want to live without Amazon, he believes.

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Meanwhile, Amazon will tack on other businesses to its retail empire.

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Galloway thinks some brick and mortar stores will continue to be winners.

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Smart B&M stores are using assets Amazon doesn’t to do things Amazon can’t, like “click and collect.”

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In the UK 25% of e-commerce is “pick-up in store.”

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Mobile can connect e-commerce to in person shopping…

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…and drive sales.

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Let’s get into Galloway’s losers in retail.

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He’s bearish on pure play ecommerce companies that will never be able to compete with Amazon’s fulfillment advantage and offline brands that have weak digital presences.

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Galloway also examines society’s winners and losers in the digital age.

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He believes one clear winner is the “abject poor.”

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He also believes a global middle class is rising…

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…as more people are able to become consumers.

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There are some losers due to the digital age, of course.

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The middle class in already developed countries is one of them, Galloway believes.

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New giant companies, like Facebook, only employ a fraction of the number of people old giant companies, like Unilever, employ.

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A dwindling middle class will lead to real problems in developed countries. Infant mortality is worse in unequal countries.

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So is life expectancy.

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Children will be less healthy, he says.

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The middle class is shrinking as higher education gets more expensive.

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The problem is particularly bad in the US.

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The digital age benefits the uber-rich more than anyone.

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In the US the .01% now own 12% of all assets. It used to be 2%.

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The über rich control politics as well, he argues.

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As a result, tax policy is especially geared toward the very most rich people in the world.

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Galloway isn’t optimistic about the cycle ending.

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Here’s a summary chart of winners and losers.

Here's The Deck On 'Winners And Losers' Hedge Fund Managers Are Begging To See (51)

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Watch Galloway go through his presentation here.

Here's The Deck On 'Winners And Losers' Hedge Fund Managers Are Begging To See (52)

Galloway's think tank, L2, works with member clients and it puts on events where it shows more presentations like these. Check it out here.