Identity: The Mega Theme of the 2020s
Recently on Twitter, someone posted that they intended to keep wearing a mask even after being vaccinated because he didn’t want to be confused for a Republican. This person identifies so strongly as not-Republican, that he would rather continue to live with the tangible inconvenience of wearing a mask than deal with the potential discomfort of someone else he doesn’t even know thinking he might be a Republican.
Welcome to the 2020s, the decade of identity. Whereas search was the defining function for the Internet in the 2000s and social was in the 2010s, identity will be the tech megatrend that defines our current decade.
A Framework for Identity
Oxford offers two definitions for identity: the fact of being who or what a person or thing is, and a close similarity or affinity. As such, identity creates a paradox that represents the intersection of individuality and conformity. It is the tension between individuality and conformity that demands persistent action by the individual to reaffirm both their uniqueness and alliance. Both uniqueness and alliance require the presence of others. Uniqueness must be relative to someone else, and alliance must be with someone else. Identity is both how we see ourselves and how others see us, even if those two don’t always match.
Expression and cultivation of identity was a relatively simple matter before the internet. It was dominated by visual cues that broadcast status and membership to certain groups. The clothes you wore, your physical appearance, or wearing a mask as mask mandates cease. Those things could say you’re a blue-collar worker, you’re a fit athlete, or you’re a Democrat. Immutable genetic characteristics like race and gender also powerfully shape offline identity.
Since the visual aspects of the latter category cannot easily be changed, investment in identity pre-Internet was primarily in physical goods, especially luxury goods. Brands convey a message about the patron of the brand. Louis Vuitton says I’m rich. Nike says I’m athletic. Lululemon says I’m rich and athletic. A brand doesn’t even necessarily have to be expensive. A $30 Nascar race shirt or concert shirt is a powerful indicator of identity and a relative luxury for the stereotypical blue-collar owner.
This initial framework for offline identity expression gives us three categories: immutable physical characteristics, mutable physical characteristics, and mutable adornments.
Intentional expression of identity need not require luxury brands, but it does require disposable time or stored units of time (money) from the person trying to shape their identity. As such, expressing one’s identity in an intentional way is the ultimate luxury. This will remain true, perhaps even more so, as the importance of online identity grows.
An Online Identity Framework
I’ve long believed that technology isn’t inherently good or evil, it only magnifies human nature. This seems acutely true for technologies related to identity.
In the offline world, your identity is relative to a confined group wherever you are — your town, school, work. Your local community is the original tribe, and the degree of uniqueness required to establish a unique identity within a pre-existing tribe is relatively small. In the digital world, there is no such original tribe. You’re part of millions and millions of other people searching for unique belonging. The degree to which you need to be unique rises, but so too does the necessity of attaching oneself to a tribe. Consequently, expression of online identity lives by the law of Balaji Srinivasan that the Internet drives extreme outcomes.
The necessity to engage in extremes means that people will invest more to build online identity relative to offline, whether through social capital paid for by time or goods paid for by money.
We shape our online identities through social capital invested in how we speak and through the beliefs we present to the world. Social capital is created through consistent and persistent espousal of these beliefs. Scroll through any social media feed and you will see this positioning amongst everyone you follow. Scroll through your own feed, and you will see the same. Eugene Wei’s epic Status as a Service piece describes social capital in great depth.
Social capital is the most important expression of identity in the online world, while paid capital is in the offline world. Social capital is harder to establish and express in the offline world. Someone may go to protests or support a certain political candidate, but if they don’t adorn themselves with something that demonstrates those beliefs to the world, that social capital is not effective in transmitting identity. Immutable characteristics may come with some social capital in the offline world, although that assumption is fraught. We are a diverse society with diverse views that aren’t reflected simply along the lines of genetic characteristics.
Whereas social media has created a powerful tool for the creation of social capital through expression, paying money to build online identity is less widespread. In the crypto community, anyone can add laser eyes to their online profile, but a few people use Cryptopunks as their avatars, which demonstrates both a far deeper investment in crypto as well as belonging to a small community of NFT believers. Cryptopunks are a generative pixel art project, one of the earliest NFTs. The cheapest Cryptopunks today cost tens of thousands of dollars, so the investment is substantial. Similarly, someone spent $4,000 on a digital Gucci bag in Roblox. Whales on games like Fortnite spend hundreds of dollars a month on skins to use in game.
While the digital nature of the online world frees us of immutability and physicality, we import many of these offline aspects as part of our investment in social capital and paid identity. Immutable offline characteristics like genetic makeup grant social capital for online identities, as do mutable physical offline characteristics like body type or gender identity. How people spend money offline also grants online identity through pictures of private jet travel, hunting trips, and engagement rings.
The distinction between imported vs digitally native identity and social capital vs paid capital creates the following framework for online identity:
The construction of this could also be separated to show that the elements of identity that we import from the offline world constantly reinforce the digitally native elements of identity in a virtuous cycle. This is the necessity of extremes in action. The back-and-forth reinforcement of one’s identity from offline to on strengthens the allegiance to that identity.
We can segment the framework another way to demonstrate how I believe social capital is pushing out in all directions, reinforcing itself and influencing the function of paid capital.
The extension of social capital in all directions is what will make 2020 the decade of identity. I see three major classes of investment opportunity that will result:
1. Social Experimentation
2. The Political Corporation
3. Digital Luxury
We’ve talked before how the attention game demands greater extremes by the participants playing. Extremity garners attention and social feedback, but it can also be ruinous as we’ve seen with cancel culture. Cancel culture is the forced bankruptcy of one’s social capital. We can debate whether cancel culture consists of fair and appropriate consequences for “bad actions,” but it’s indisputable that inappropriate consequences reduce positive risk taking and free speech, and that restricts the discovery of truth.
Most people naturally understand that free speech and experimentation with ideas, sometimes seemingly dangerous ones, is the path to truth. It’s why people try to both defend and control speech so vigorously. In a digital world with no real fixed properties other than social enforcement mechanisms, human nature dictates finding ways to work around restrictions in search for truth.
The Social Experimentation opportunity relates to online pseudonymity, which allows for free speech and creative expression against forces that try to restrict it.
Others have described opportunities in pseudonymity elsewhere, so I will limit my observations to two. First, pseudonymity is already a real and growing part of social media. Those networks that find ways to embrace it will, by nature, have the most extreme and compelling content given greater freedom of expression. This will be, and has been, a double-edged sword. Unfettered creativity leads to profound discovery, and it can also lead to the profound departure from truth. New systems, probably decentralized in nature and perhaps financially incentivized, will need to emerge to reel in bad actors.
The second observation is that as worlds become more digitally immersive, pseudonymity becomes a more inherent than adopted feature. Current social networks are largely built on the idea of importing of offline characteristics and identity into the digital world. Gaming worlds and virtual worlds rely on little to no importation of offline characteristics and are pseudonymous by nature. I see those types of worlds being a large part of the future social paradigm.
Pseudonymity enables the uninhibited expression of thought, which is the most authentic form of identity. This is why it will define social networks for the next decade, whether current ones or new ones.
The Political Corporation
On the left-hand side of our social capital expansion framework, imported or offline paid capital intersects with social capital. The combination of the two demands that physical or traditional goods and services paid for by an individual reflect the social capital ideals important to that user. The person’s patronage must reflect his intentional investment in social capital. To demonstrate, we can take the introductory mask example to a greater extreme. Maybe the person who doesn’t want to be mistaken for a Republican in the future will only shop at stores and use service providers that reflect Democratic politics.
Companies have already started dabbling in political expression to mixed effect. Nike seems to have had success with its Colin Kaepernick campaign, but Gillette received more scorn than praise for their toxic masculinity ad on YouTube. Earlier this year, we saw companies opine on voting law legislation in Georgia and other states. Many of those companies appear to have backtracked, or at least changed tactics, after displeasure from Republican leaders and media.
Backtracking and inconsistency are mechanisms of failure in the era of the Political Corporation. As social capital mixes with the sale of traditional goods and services, companies will be forced to choose which identities they wish to represent. This would create both a huge danger to large, established corporations and a huge opportunity for startups looking for new avenues to compete.
The emergence of the political corporation is dangerous to large incumbents because these companies often serve a diverse populace. Democrats and Republicans both use Gillette products, but many of the latter were unhappy with the company’s toxic masculinity ad. Large companies like P&G that offer commoditized products built on advertising are most at danger of the Political Corporation. Banking, apparel, and CPG companies all live on brand, and what better way to establish brand rapport and trust with customers than to align with the key elements of their identity? Politics isn’t the only avenue to identity alignment, but it is the most powerful and likely to be the most effective. Startups that begin with a user base of zero can use this alignment to great effect.
The challenge for any company looking to use identity as part of building an offline product or service is figuring out how a user can augment their own social capital by associating with the company. If the company’s product or service doesn’t easily share or otherwise demonstrate the user’s social capital investment, it won’t likely be successful. Political Corporations must build their own identities through investments in social capital like those of individuals and extend their own social capital to customers. These companies will need to consistently express what they represent and do it in creative, modern ways with memes and other sharable mechanisms. Black Rifle Coffee has done this well, as has Aspiration has for a very different customer segment.
Expect many more brands like these to emerge as identity becomes a holistic part of selling to customers over the next decade. Those companies who try to please everyone may be left with no one.
On the righthand side of our framework, we have the intersection of social capital and online paid capital, which I call Digital Luxury. The defining feature of Digital Luxury is verifiable ownership, which interacts with both the Social Experimentation and Political Corporation themes. In the context of Social Experimentation and pseudonymity, digital goods will be the primary way to express identity through monetary means because importing offline activity risks revealing the identity behind a pseudonym. In the context of the Political Corporation, digital goods eliminate the analog inefficiency of the Political Corporation needing to find ways to augment customer identity through some stated association between the two.
Public, blockchain-based NFTs are a powerful way to demonstrate verifiable ownership of unique digital goods. That’s why I believe NFTs are such a potentially valuable category despite the hype cycle and broader skepticism that often comes with prematurely hyped technology (see the Internet, VR, AI a few times, self-driving vehicles, etc…). NFTs, or something similar, are a necessary component of establishing Digital Luxury. It’s hard for anything to be luxurious that doesn’t have defined scarcity or verifiable ownership. Additionally, the NFT community consists of many forward-thinking people in tech, and community is often what determines the success of any emerging technology.
The Digital Luxury segment may be the most exciting of all three opportunities here as it combines two traditionally high margin businesses: digital and luxury. The margin of a digital Gucci handbag must be higher than the margin of a physical one. Digital Luxury companies may generate the highest margins of any company we’ve ever seen since the cost of creation is often negligible.
The greatest challenge for a Digital Luxury goods company may be its ability to reinvest enough of its profit back into those high margin businesses to compound. Capital allocation has historically been a challenge for offline luxury (see LVHM). The best Digital Luxury companies may similarly need to rely on creative M&A to build empires.
Given the ease of creating digital goods, the market will be flooded with unique items to mark identity, but most of them will hold little value in doing so. It is the investment in meaning that fosters identity that makes a Digital Luxury valuable, and that is intangible. Memes matter in the world of digital goods, so ignore them at your own peril. The seemingly stupid can be just as powerful as the ingenious provided it empowers some audience with identity. But this doesn’t mean identity is stupid. Quite the opposite.
Identity is a fundamental aspect of human nature. As Wei states in the aforementioned Status as a Service piece, we are status-seeking monkeys. The 2010 decade of social media emergence built the initial framework for we humans to act out our status-seeking nature persistently and at scale. The 2020 decade will come with the evolution of identity through pseudonymity and a deeper connection to how we spend money, although we will still just be status-seeking monkeys at heart.