Victory Royale! Fortnite is Exploding

  • Epic Games’ Fortnite has exploded in popularity over the past few months for four reasons.
  • 1. It’s accessible to all (free to play, compared to similar games that cost $60, and easy to play, different than most complicated console games).
  • 2. It’s fun (Battle royale style).
  • 3. It’s high-quality (frequent gameplay, weapon, and skins updates).
  • 4. No pay-to-play advantage (keeps level playing field. Most games make money selling play advantage).
  • We believe these four factors will result in Fortnite being a top 5 game for the next several years.

Fortnite 101. Fortnite is a battle royale game, where 100 players parachute onto an island with the goal of being the last one standing at the end. A “storm” serves as a boundary that closes in at set intervals, shrinking the playable area and forcing players closer and closer together. Players begin with no equipment and must scavenge around the island looking for weapons and supplies to give them an advantage over the opposition. Fornite has screamed to the top of gaming titles recently and is the number 1 most viewed title on Twitch as of this writing.

Easily accessible to all. Fortnite is an extremely accessible game in a number of ways. For one, it’s free, making it easy to convince friends and family to try it out versus console games that usually run about $60. This is a major reason for its fast ascension to cultural phenomenon. When gamers see their friends playing a game or want to try a new one, they often must consider if it’s worth the investment. With Fortnite, users are able to play the online multiplayer without any upfront cost.

Another facet of its accessibility is the graphics and visuals. The aesthetic of Fortnite is cartoony and a little silly, which makes it much easier for parents to get on-board and expands the audience of the game to a younger demographic. There is no gore, no dead bodies lying around and the weapons feel less like instruments of destruction and more like they’re made by NERF or SuperSoaker. PlayerUnknown’s Battlegrounds (PUBG), the first major battle royale title, has a much grittier, more realistic aesthetic that is targeted to an older audience. Fortnite looks and feels like it’s directed at kids, but has enough complexity and a high enough skill ceiling that it keeps older, more competitive players interested as well. It’s an example of the old adage, “easy to learn, difficult to master.”

Furthermore, it’s playable across platforms. It is available on PS4, Xbox One, PC, and iPhone, with Android support coming soon. Fortnite also supports cross-platform play, so players on the PC can play with their friends or family who play on Xbox (though PS4 and Xbox players can’t play together, Sony is blocking the option). This is the first time that this has been possible for any video game and could prove to be a major milestone for online gaming.

It’s fun, battle royale’s rise. Battle royale games are a relatively new phenomenon. One of the keys to Fortnite’s meteoric rise is that this genre is inherently fun. The longer the game lasts – and the closer you get to victory – the higher the stakes and the higher the stress. The exhilaration of being one of the few remaining players is a significant factor in the game and the genre’s popularity. Ultimately winning a game, emerging as the lone victor out of a hundred other players is an incredible feeling not found in other game modes. While Fornite was not the first game to embrace this format it was one of the earliest and brought its own unique spin by allowing in-game building of walls, ramps, and roofs. The building mechanic adds another layer to the game for players, giving them the ability to quickly reach previously inaccessible locations and create cover or an escape route under fire.

High-quality game. Fortnite’s battle royale format and accessibility would be non-factors if it weren’t for the fact that Fortnite is a high-quality product. The game is still in early access (i.e. it’s not a finished game), so there are some kinks here and there, but the Epic team is committed to the product and is visibly working hard to make sure the game is running smoothly and keeps players engaged. They have continued to add new weapons, equipment, locations, and other features to the game free of charge so one can continue to play and get the full experience without paying a cent. Fortnite brings in revenue is by selling cosmetics for players to personalize their in-game character, and a 10-week ‘Battle Pass’, essentially a subscription that gives players more challenges to complete and cosmetics to unlock during that period. The game looks good, feels good, and is free. It’s not a tough sell to get people to try, and once they do they are hooked. Below is an example of two of the latest in-game character skins that can be purchased.

No pay-to-play advantage. While it’s hard to say how much the approach to in-game purchases contributes to Fortnite’s success, it is starkly different from how some major publishers approach in-game purchases. Electronic Arts has been successful with in-game purchases, especially with their FIFA games, but also faced notable backlash from the way the in-game purchases for Star Wars: Battlefront II were setup. EA allowed players to spend money to unlock items that grant a competitive advantage over those who elect not to spend extra. Fornite takes a different approach, offering its 10-week Battle Pass and limited-time character skins, items, and emotes, which are completely cosmetic and provide no competitive advantage. Some of these items are only available for purchase in a 24-hour window before they disappear from the store, driving users to get the items they like while they can. Despite the game being released for free, and in-game purchases providing no competitive advantage, Fornite earned $126M in revenue in the month of February alone. Since then, Epic Games has launched Fornite Mobile, which has reportedly reached $1.8M in revenue per day. Needless to say, their unique in-game purchase strategy seems to be working.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

eSports Franchise Economics

We’re bullish on eSports and committed to learning more about the space. The following note is an introductory piece that ‘shows our work’ as we get up to speed.

Given the recent explosion in popularity of eSports leagues, we wanted to take a look at the economics of owning of an eSports franchise. As eSports has grown in popularity, the model for team ownership has begun to change. 2018 marked the first year of competition for two new franchise leagues for Overwatch and League of Legends, both of which now operate similarly to traditional professional sports leagues.

Traditional eSports Organization

Traditionally, teams participating in eSports were self-organized. Teams would find the necessary players to participate and join leagues and tournaments by paying an entry fee. By winning or placing near the top of these tournaments, teams would be compensated from the prize pool. As eSports became more popular, more revenue opportunities presented themselves for teams. These opportunities included: sponsorships, merchandise, branded skins, and advertising opportunities on streaming platforms.

With more revenue opportunities came better ownership organization. Ownership groups began to form, owning teams in multiple games. A team owner helps set up sponsorships, creates merchandise, and helps market the players. A good example of an eSports organization is Team Liquid. Team Liquid was formed in 2000 as a Starcraft news site, before expanding to other games. It signed its first eSports team in 2012 after recruiting a group of Dota 2 players. Since then, Team Liquid has added more players and teams, and now operates unique rosters in the following games:

  • Starcraft II
  • League of Legends
  • Counter-Strike: Global Offensive
  • Dota 2
  • Heroes of the Storm
  • Super Smash Bros. Brawl
  • Street Fighter
  • FIFA
  • PlayerUnknown’s Battlegrounds
  • Quake
  • Rainbow Six: Siege

How do eSports teams make money?

The breakdown of income varies by organization, team, and game. The vast majority of revenue (roughly 70-80%) for eSports organizations comes from sponsorships and advertising. The remaining revenue is split evenly between ticket sales, merchandising, and media rights.

Sponsorships & Advertising

This category includes advertisements shown during televised and live-streamed events, as well as revenue from brands that sponsor individual teams. Companies are flooding eSports players and teams with sponsorship opportunities, and it is only going to continue to grow. In addition, players and teams can earn money from product placement and recommendations. Team jerseys are essentially billboards benefitting from rapidly growing viewership. On Amazon’s live-streaming platform, Twitch, users can scroll down to see discount codes on gaming equipment, clothing, and other products, and streamers get a cut of the sales made using their discount code.

eSports teams don’t earn advertising revenue from an individual player’s live-stream, but rather when the team is participating in an event. eSports is well-positioned as an advertising opportunity for a number of reasons. First, cord-cutters are turning to online platforms, like YouTube and Twitch, for live entertainment. Second, eSports’ younger demographics are valuable to advertisers. Finally, eSports franchising adds stability for teams, their sponsors, and advertisers (more on that below). With more users flocking to online streaming platforms, and the audience becoming more valuable to advertisers, media rights contracts are becoming more valuable, and advertisers are paying more money to eSports leagues, teams, and players. Global brands including Coca-Cola, Mercedes-Benz, and Intel have recently begun sponsoring eSports in various ways because they recognize the value and massive opportunity. This builds an attractive foundation for investment.

Ticket Sales

Traditional eSports events are held at event arenas around the world. The League of Legends World Finals has been held at Staples Center, and a mid-season League of Legends event was held at Wembley Arena. Other venues have included Commerzbank Arena in Frankfurt, San Jose SAP Center (also known as the Shark Tank), and Sang-Am World Cup Stadium in Seoul, South Korea. While the audiences vary in size, large events typically have between 10-15K in attendance, with some events attracting many, many more. Still, the lion’s share of eSports fans watch the events online.

For franchise league eSports teams, one difference when compared to traditional sports franchises is that they lack a home arena to sell tickets and merchandise. Instead, eSports events are held at neutral, league-owned locations. As a result, teams and organizers share ticket revenue. Team-owned stadiums are very much on the mind of team owners, especially with the location-based teams in the Overwatch League.

The Overwatch League currently holds all of their events at Blizzard Stadium in Burbank, CA.

Source: Blizzard Entertainment

NA LCS hosts events its own studio in Los Angeles, CA, across the street from Riot Games headquarters.

Source: Riot Games

Merchandising

A major revenue contributor in the merchandising category are in-game skins. A “skin” is simply different design or color scheme for a playable character or in-game item. Think about giving Mario an astronaut suit instead of his famous red hat and blue overalls. While skins are cosmetic and offer no competitive advantage, they are a major source of revenue for game developers because players enjoy the customization, and are willing to pay for it. In fact, in-game purchases (which skins contribute to) generated more than half of Activision-Blizzard’s revenue in 2017, amounting to $4B. Developers of eSports-compatible games have tapped into this digital goods market and begun to create team-specific skins for major pro teams. Fans can purchase these skins to show support for their favorite team or player. League of Legends and Overwatch are the two major games that have eSports-specific skins, but games with smaller competitive scenes like Halo 5 and Gears of War 4 have them as well. We believe the adoption from the OWL and the LCS is an indication that this is a market future eSports organizations will want to target.

  • League of Legends. Riot also creates skins for their league’s teams. When a world champion is decided at the end of each season, Riot makes a skin for the winning team. These are available for a similar price of about $5 worth of Riot Points, LoL’s in-game currency. The team receives 25% of the revenue from these skin purchases.
  • Overwatch. Blizzard essentially created “jerseys” for each Overwatch League team and made them available for fans to purchase for $5 per skin via in-game tokens. See an example of playable Overwatch heroes wearing the team “jerseys” below. The competing teams also “wear” these skins during each and every OWL match, making it the eSports equivalent of wearing your favorite team’s jersey. The revenue generated from this goes into a communal pot that is split evenly amongst the 12 teams.

Overwatch heroes wearing the Houston Outlaws skins

Similar to other revenue sources, game publishers share revenues for skins with teams and organizations that create and promote them. Fans of specific eSports teams can sport their favorite skins in-game. This is akin to wearing a Stefon Diggs jersey while pretending to catch game-winning touchdowns.

Media Rights

While the concept of watching others play video games may seem foreign to some, there are a surprising number of people that tune into eSports events. Because of this, eSports franchises have recently been able to benefit from broadcasting contracts, just as traditional sports. While some eSports events reach cable television, the vast majority of viewership happens online.

One of the most important players in the eSports market is the Amazon-owned streaming platform Twitch. Acquired for $1B in 2014, Twitch had 355 billion minutes of content viewed and over 15 million unique daily visitors on its platform in 2017 and strong growth continues. More on Twitch’s metrics below:

On Twitch, gamers are able to stream their gameplay to viewers around the world. Believe it or not, one can make a living streaming gameplay on Twitch, and a fairly comfortable one at that. The revenue sources for streaming come from three main sources: advertisements, donations, and subscriptions.

  • Advertisements. Streamers can have video ads play before their actual stream is shown (just like on YouTube), earning money passed on the number of impressions their channel gets. They also often have endorsements and advertisements on their Twitch pages from, for example, companies that make gaming equipment and computer parts. This creates a similar effect to traditional sports equipment endorsements where fans and amateurs want to use the equipment the best does, and having a well-known player use your equipment adds value and drives sales.
  • Donations. Another source of revenue is donations from viewers. The amount and frequency of donations are up to the donor, some as low as $2 but some up into the tens of thousands. Here’s a video of a streamer receiving $62,000 in donations. Spend some time watching a popular streamer and you would be baffled by how often they’re getting donations, whether directly via PayPal or by “cheering” with Bits.
  • Subscriptions. Finally, streamers earn money from viewers subscribing to their channel. A subscription lasts for a month and costs $5.00, and the streamer will usually take about half of that money per subscription. Twitch operates on a revenue sharing model with top streamers on its platform. The more popular the streamer, the higher percentage of revenue they are able to negotiate. Subscribing to a channel offers benefits like ad-free viewing and special chat privileges like emotes and additional features. Note that viewers re-subscribe every month. Some streamers have 0 subscribers and some have managed to amass over 100,000.

eSports teams and organizations are able to stream as well. The structure is exactly the same as explained above for individual streamers, the money is just given to the collective group as opposed to one person. Many times, though, a player on a particular pro team will have a stream more popular than his overall team’s. It’s an example of how important personal brands are in eSports. Teams, however, don’t make much from having a player with a large Twitch following. Sure, they have the team’s logo and name on the page/video and the streamer is clearly representing that organization with merchandise and even the name they go by online, but teams won’t see any money from one of their players’ streams. The popularity, and therefore most of the money, comes from viewers being drawn to the content the individual is producing. Media rights for tournaments, and the revenue shared with the teams from those deals, is where actual eSports teams will be able to cash in on this trend as individuals don’t stream tournaments, organizations do.

When it comes to tournaments themselves, massive audiences tune in to events online. The League of Legends World Championship amassed 60 million unique viewers. To help put that number in perspective, the 2018 Super Bowl reported just over 103 million viewers. While eSports still has a long way to catch-up, it’s not dwarfed to the extent that some may think.

Tournament Winnings

For players, competition is what eSports is all about. Players and teams compete to win tournaments and the associated prize pools. While these pools can be massive, such as the $24M+ pool for Dota 2, few players in the overall eSports community take home winnings. Positively, most winnings are distributed directly to the players. While there are some large tournament pools, the vast majority of eSports players and teams earn most of their income through the other sources we’ve talked about.

eSports Franchise Leagues 

In 2017, three different franchise leagues were put into place, with competition beginning in the 2018 season. While the franchise leagues operate with similar game rules to previous leagues and tournaments, they require teams to pay a franchise fee in order to participate. By paying a franchise fee, leagues benefit from stability of teams and players, and operate the entire league’s advertising, sponsorship, streaming, and merchandising opportunities. This format is similar to the way major professional sports leagues operate. This shift toward franchising is a huge step for the legitimacy of eSports, in both the eyes of the public and investors. Thus far in its young life eSports has been plagued by a lack of stability, making it difficult to land sponsors. Before the franchising announcement last year, teams that placed poorly in the League of Legends Championship Series were relegated – similar to the English Premier League – where the teams that finished at the bottom were sent down and had to had to grind their way back to competing against top teams. The possibility of being dropped to a lower league with far less viewership and no certainty of promotion made companies very hesitant to inject money into something that could very easily lose its relevance. With the stability of franchises in leagues with multi-year broadcasting deals, the investors and sponsors are pouring in.

Today, there are three franchise leagues:

  • League of Legends North American Championship Series – by Riot Games
  • Overwatch League – by Blizzard Entertainment
  • NBA 2K League – operated by the NBA, game developed by Electronic Arts

League of Legends North American Championship Series (NA LCS)

League of Legends, a multiplayer online battle arena (MOBA) game, was released in October 2009 by Riot Games.

While the League of Legends Championship Series has been around since 2012, they organized into a partnership with their 10-teams last fall, requiring owners to pay franchise fees. In order to participate, six existing teams paid a franchise fee of $10M, while four new teams paid $13M.

Many of the prominent eSports teams have received support from professional sports owners or athletes. Of the four new teams to NA LCS, are all wholly- or partially-owned by NBA franchises: the Cleveland Cavaliers (100 Thieves), Houston Rockets (Clutch Gaming), Golden State Warriors (Golden Guardians), and Milwaukee Bucks (OpTic Gaming). The new teams aren’t the only teams with ties to professional sports. Echo Fox was formed by ESports group, led by former NBA player Rick Fox. Team Liquid, one of the original eSports brands, was acquired in 2016 by a group led by Jeff Vinik, owner of the Tampa Bay Lightning.

NA LCS began its season on January 20th, 2018. Games are streamed on its own website, YouTube, and Twitch. The prize pool for the league is $200K.

Overwatch League

Overwatch, a team-based, first-person shooter, was released in May 2016 by Blizzard Entertainment.

Blizzard Entertainment announced the Overwatch League in 2016, and established 12 teams in cities across the world. 9 teams are based in the US, with the other 3 teams based in Seoul, Shanghai, and London. Each team paid a franchise fee of $20M to join the league. There are already rumors of further expansion and increased franchise fees due to the early popularity and success of the league (10m viewers in its first week of matches).

The Overwatch League began its season on January 10th, 2018. Matches were initially streamed on the OWL website as well as MLG’s, but in January Blizzard reached a two-year, $90m deal with Twitch to broadcast Overwatch League matches on the streaming platform. The prize pool for the league is $3.5M.

NBA 2K League

The NBA 2K league is the first eSports league to be operated by one of the four major pro sports leagues in the United States. The 2K league hosted open tryouts for hopeful participants in February, and has scheduled a draft to be held on April 4th at Madison Square Garden. 17 NBA teams will have a team in the 2K league. Players drafted to each franchise will live in the city they represent. For the first season, all games will be played at one or two central locations.

An interesting part of this league, is that viewers will not see current NBA players in the game. Instead, NBA 2K League participants will have their own created players that they will represent in the league.

The NBA 2K League begins competition in May. The NBA is currently in media rights negotiations to determine where the games will be broadcast.

What Does the Future of eSports Look Like?

We are big believers in the future of eSports and gaming. While we are excited to see where the industry goes, the concept of owning a team in a franchise-based league poses a unique challenge.

Major professional sports have all been around for 100 years or more. If you ask fans of these sports, they believe that the games will exist in some form or another 100 years from now. Specific eSports games on the other hand, eventually give way to newer options. On top of that, in eSports there is an entity that owns the game and has complete control over it, something traditional sports don’t have to deal with (no single entity “owns” the sport of basketball).

While there are some outliers that have remained in the spotlight for a long-time, there are concerns about long-term interest in games from a competition standpoint. 10 years ago, some of the most popular eSports games were Starcraft: Brood War, Halo 3, and Counter-Strike: Source. While some of these franchises are still seeing success with new releases of the games, there are new games that have dominated the scene as of late. League of Legends was released in October 2009, Overwatch was released in May 2016, and our office-favorite, Fortnite, was released early access in July 2017. There will always be new games to come along, which poses a unique challenge for eSports owners of franchise fee paying teams. The owner of the Toronto Maple Leafs doesn’t need to worry about whether fans will want to watch the team play in 50 years. There is confidence in the long-term interest of the game. For eSports, the question about long-term interest is harder to answer.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Amazon Go Extends Amazon’s Dominance to Brick and Mortar

After our first visit to Amazon Go, Amazon’s automated retail store in Seattle, we’re not surprised to hear the company has plans to open up to six more cashierless convenience stores later this year.

Our experience was flawless, leaving us increasingly confident that Amazon is best positioned to own the operating system of automated retail. Eventually, we expect Amazon to make this technology available to other retailers, as they have with Fulfillment by Amazon (FBA) and Amazon Web Services (AWS), expanding their dominance into brick and mortar.

The $50B automated retail opportunity. In 2016 there were 3.5 million cashiers in the U.S., according to the Department of Labor, with an average salary of $13,574, according to Data USA. That makes for a nearly $50 billion opportunity in cashierless retail that Amazon is well positioned to attack. Of those 3.5 million cashiers, 323,000 are convenience store or gas station employees, or 9% of the cashier workforce. The automated retail space is getting more and more crowded, but the Go store suggests that Amazon has the pole position.

Why we think Amazon will license the Go technology. Just as Amazon did with FBA and, to a lesser extent, AWS, Amazon is initially building a backend infrastructure for its own use with Amazon Go. And just like FBA and AWS, that infrastructure gets more valuable as it scales. The Amazon Go backend gives the company a trojan horse into the brick and mortar retail space, clearly an area of interest given the Whole Foods acquisition. Perhaps the more critical question is why a retailer would work with Amazon? Our answer is the same as it is with all of Amazon’s best offerings: convenience. Retailers would have a turnkey solution for automated retail. While larger stores like Walmart and Target may not want to use the technology for competitive reasons, branded retail stores (like a Nike store) may be a fit if Amazon can create a product that helps save the retailer labor and processing costs.

The Amazon Go experience. Amazon Go builds on the company’s core competence of convenience by automating the store with no cashiers or checkout lanes. Scan your phone on entry, grab your items, exit. In one test we bought a can of La Croix in 23 seconds. It felt like two parts magic and one part theft.

A few observations from our visit:

  • No cashiers, but lots of employees: mostly chefs assembling the prepared food, one ID checker in the beer and wine section, a greeter/security guard, and a few stockers replenishing shelves, bags, and plasticware.
  • Signage with instructions everywhere: download the app, scan your phone here, just walk out; clearly, there is a great deal of consumer education at work.
  • Quickly builds trust: By my second or third trip, I was certain that the store was capturing and changing my items as I grabbed and replaced items throughout a visit.
  • Felt more like a tourist destination than a convenience store: most shoppers were taking pictures or video inside the store.
  • All about speed: Signage, taglines, the Just Walk Out Technology, the app, even the receipt all focused on the trip time (my record: 23 seconds for 1 item).
  • No chat: I never spoke to anyone or interacted with a person during several visits to the store.
  • Don’t linger: I found a seat at a nearby Starbucks (notable) where I could jot down my observations after visiting the Go store. There were 10 people in line at Starbucks, waiting to order, and another 5 people waiting where 8 baristas behind a waist-high coffee bar called out customer names and handed them personalized cups of coffee. It was a stark contrast to the can of La Croix I had just grabbed off the shelf at Amazon Go and paid for via the magic of cameras and the internet.

We envision the future of retail in three categories:  1. online retail (e.g., Amazon.com), 2. automated retail (e.g., Amazon Go), and 3. Empathic retail (personalized services based on mutual understanding or empathy; more here). Amazon has already won the online space and Amazon Go could prove to be the operating system of automated retail. We’re bullish on the empathic retail space partly because it’s outside of Amazon’s core competency (convenience), leaving room for others to succeed.

Disclaimer: We actively write about the themes in which we invest: virtual reality, augmented reality, artificial intelligence, and robotics. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

The Empathy Economy

Op-ed published February 7, 2018 on Business Insider

Throughout history, different eras have begotten different heroes of productivity in industry. In the 80s, the stock broker was the rock star of the business world. In the late 90s and 2000s, it was the computer programmer. For the last decade or so, it’s been the data scientist. As the work of data scientists and engineers creates the Automation Age, the next industrial rock star will be the customer service specialist.

Before you scoff at the idea of what may be considered a lower-level job today, ask yourself what happened to the stock broker? When’s the last time you talked to one or even heard of one? Jobs ebb, flow, and disappear. The importance of a function today is not equivalent to the importance of that same function tomorrow, and it never will be.

Humans have three core capabilities with which robots cannot compete: creativity, community, and empathy. As we enter the Automation Age, where the fear of robots replacing human work is likely to come true, those three skills will enable the future of human productivity. The last of the three, empathy, should well be considered the most important.

Empathy is what most makes us human – the capacity for mutual understanding. As the Automation Age eliminates rote and some not-so-rote tasks, it will create an opportunity for humans to capitalize on empathy. The manifestation of empathy in industry is through unique and memorable customer service, no matter the business. Welcome to the Empathy Economy.

The Empathy Economy is an intentional spin on the Sharing Economy. Just as the Sharing Economy was a byproduct of a super connected world via the Internet and smartphones, the Empathy Economy will arise through the result of job loss from automation. Uber, Airbnb, WeWork, and countless other business have changed the way humans think about asset ownership and even asset leasing. If users own assets, they want to get more out of them. If users need assets, they want instant access to them on demand without the burden of ownership. The Sharing Economy, as with all functional economies, is efficient in matching two complementary desires. The Empathy Economy will similarly match humans or businesses who desire empathic services with those willing to offer them.

We see 3 core opportunities within the Empathy Economy:

  1. Services that augment human empathy: For example, a lightweight CRM tool that enables employees to instantly recognize customers when they walk in the door, remember details about their lives, and know their preferences for service at the business.
  2. Services that build empathy: For example, a simulated environment that puts trainees through various situations to help them understand why another person feels a certain way and how to best serve them.
  3. Marketplaces that match buyers and sellers of empathy: For example, a platform that makes freelance customer service experts available for various tasks that might require a human touch to differentiate and enhance a particular service.

Today’s businesses must adopt automation technologies and embrace the Empathy Economy simultaneously by leveraging empathic customer service specialists as the face of their automated tools. In other words, people will act as a truly human skin on the work being produced by robots.

In the future, H&R Block will leverage AI to automate every customer’s taxes, but it’s also likely that they’ll need a human, who may only have cursory knowledge about accounting, present the sensitive reality that a customer owes the government a few thousand dollars in taxes; or perhaps the joy that they’ll be getting a few thousand dollars in refund. Either way, the human presentation creates a differentiated customer experience that can be distinctly H&R Block. Using only automation as their selling point, which every other tax prep service will also have and may only vary slightly, will necessitate a race to the bottom in price. In this example, H&R Block could benefit by adopting services that help augment and build empathy as the core skill of their customer service specialists.

Another outcome of the Empathy Economy could be Target leveraging a marketplace for freelance workers with specific product expertise and high empathic qualities to deliver orders to local customers with personalized service. Similar to the tax example, this moves the discussion away from price towards experience, which can command a premium.

You may be wondering why empathy is the greatest opportunity in the triumvirate of uniquely human traits. Creativity and community already exist in a structured sense in our societies. Creativity has always been a democracy, but the Internet made the distribution of creativity available to all. There are numerous ways, both online and offline, to share creativity and get paid for it, YouTube and Patreon as examples. These platforms will only become more important in the Automation Age. As for community, traditional institutions provide this now – governments, churches, schools, local businesses, etc. Technology will help these institutions continue to evolve with automation; however, trusting relationships between people will remain the heart of community because, by definition, it has to.  Empathy doesn’t yet seem to have a defined structure for application in our world. We know it’s important and the best businesses find ways to implement empathy into their culture, but it’s still a nebulous, unmeasurable thing. The Empathy Economy will change that.

It’s cliché to say that empathy is in short supply today because every generation probably has the same sentiment. The good news is that automation will force humans to be more human, and the Empathy Economy will create opportunities for humans to monetize a uniquely human capability. True empathy isn’t easy, but it’s the most powerful expression of humanity. In a world full of robots, empathy can only become more valuable.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio. Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.

Simplicity Series: Augmented Reality

Last week we wrote about simplicity as a driving force behind the world’s biggest technology offerings. We’re extending our thoughts on simplicity into a series that explores the necessity of simplicity in frontier technology. First, we’ll dive into AR.

Simplicity for AR in 2018 must start with a question: “What does AR do?” Not in the literal sense. We all know it overlays digital information on the real world. What the question needs to answer is what undeniable and unduplicable benefit AR confers to its users. What can only AR do?

The smartphone put a powerful computer in your pocket that lets you work and play from everywhere. Apple makes the smartphone so simple anyone can pick it up and start working and playing instantly.

What can only AR do?

The Internet connected you with the world’s information. Google sorts it for you. Amazon lets you buy things you find.

What can only AR do?

The answer isn’t that it puts a computer with the world’s information in your eye. That’s only marginally better, maybe not even, than what we have now. Marginally better is fine as an emerging feature on smartphones today, but it won’t drive mass adoption of AR wearables that people wear all day long.

The problem is more obvious when asked what the killer use case of AR is. To be clearer, a use case the average consumer could engage in every day. It’s not envisioning a new couch in your living room or getting step-by-step instructions or doing facial/object recognition. AR doesn’t have the advantage of email, messaging, and web browsing as the smartphone inherited from the Internet. Because AR is a true paradigm shift in how we interface with computers, we need to rethink communication, information collection, and information consumption specifically for AR. That hasn’t happened in a meaningful way yet.

Our tone here is tough, but only because we think the AR space has been taking a pass at answering this hard existential question in favor of experimentation with hopes that customers figure it out for them. We remain bullish on the future of AR and think the answer to our core question here might have something to do with the relative “nearness” of information it creates. To elaborate, we’ve evolved from a limited keyboard-style interface to a touch interface to a mixed reality interface that might incorporate gestures, thoughts, voice, etc. Interacting with information is becoming much closer to how we interact with the real world. This answer isn’t perfect, but we think it’s in the right direction.

Disclaimer: We actively write about the themes in which we invest: artificial intelligence, robotics, virtual reality, and augmented reality. From time to time, we will write about companies that are in our portfolio.  Content on this site including opinions on specific themes in technology, market estimates, and estimates and commentary regarding publicly traded or private companies is not intended for use in making investment decisions. We hold no obligation to update any of our projections. We express no warranties about any estimates or opinions we make.