Life after Coronavirus

Photo by Charles Postiaux on Unsplash

As many of you know, Tim Urban’s blog, “Wait but why?” is one of our favourite reads. Back in late 2018 when we founded Three Body Capital, one of his classics on Artificial Intelligence from 2015 resurfaced as team reading. In it, he introduced the concept of a DPU – “Die Progress Unit”. The notion of death in the midst of a global viral outbreak is morbid, although in Tim’s case, it takes on a more hopeful spin.

“In order for someone to be transported into the future and die from the level of shock they’d experience, they have to go enough years ahead that a “die level of progress,” or a Die Progress Unit (DPU) has been achieved. So a DPU took over 100,000 years in hunter-gatherer times, but at the post-Agricultural Revolution rate, it only took about 12,000 years. The post-Industrial Revolution world has moved so quickly that a 1750 person only needs to go forward a couple hundred years for a DPU to have happened.”

Whereas the focus of the rest of Tim’s posts on the subject is on the accelerating pace of technological advancement in creating progress, we suspect there’s another way to achieve a DPU: a crisis. That includes the one we’re currently facing down with Covid-19.

The necessity for self-isolation that has arisen as a result of the spread of Covid-19 has forced changes in behaviour on a global scale which were previously seen as excessive, unnecessary or outright unthinkable. In some sense, the technology to do so has been in place for a long time – adoption has simply been slow, as the “old ways” worked just fine. Coronavirus has acted like a catalyst, accelerating pre-existing structural trends and surprising everyone in the process. Our view is that in many ways, once these changes happen, we’ll simply not want to go back to the old ways. The light at the end of the Covid-19 tunnel is exactly what we look to benefit from in the investment approach of our soon-to-be launched fund: emerging opportunities.

So, we thought it might be fun – and rewarding – to push around some ideas for how the world (and our relationship with it) might change when the dust settles and “normal” life resumes in the AC (Anno Coronavirus) era. Of course, we don’t know what’s going to happen for sure. But we’ve had a lot of fun in recent weeks imagining what might happen, and how we can position ourselves and our investors to benefit as a result.  

Telemedicine.

A visit to the doctor, while daunting for many, also serves as a source of comfort and assurance for patients. This is despite the fact that apps like Babylon and Ping An Good Doctor – to name the two most prominent ones in the market – have existed for a couple of years now. Adoption has been limited to users who appreciate the convenience of being able to talk to a GP via video call, but for most others, it was “not the real deal”. Likewise, the willingness of GPs to adopt a video platform was also hindered, not only by the idea that it wasn’t “good enough”, but also (particularly in the UK) by funding complication. All this despite the fact that in the majority of cases (exceptions exist, of course), GPs can do their job as well on a video call as in person.The high infection rates of Covid-19 have now rendered clinics danger zones in themselves, posing risks for both doctors and patients alike. The need to see a doctor has risen, but the desire to not be in close contact with a doctor and other patients (who could be asymptomatic but infectious), makes the prospect of going to a clinic extremely unappealing. This is a perfect storm, accelerating adoption of telemedicine platforms globally.We haven’t yet seen updated stats from Babylon Health and other telemedicine platforms, but we suspect that video-calling your GP will mutate from novelty to a necessity over the coming months and years. 

Online education.

Arguably pioneered by the Chinese, the model of classrooms of children located all across the entire country taught by one single superstar teacher used to draw stares of incredulity. “What about the personal touch, that face to face relationship a teacher has with his/her students?”, the critics used to say.As schools start to close and children find themselves at home with their parents 24/7, delighting neither parents nor children in most cases, keeping children engaged – and more importantly, educated – is turning into a challenge. For many in the UK, mornings with children now begin with PE with Joe Wicks aka “The Body Coach”. While PE and advanced algebra take on very different requirements for teacher supervision, it would appear that adopting the virtual classroom model would herald a promising future for superstar teachers (like this “Math Whisperer” in Wales), and for the platforms that facilitate these classes.

In fact, tele-everything.

In a broader sense, forced adoption of an approach to daily life that doesn’t involve face-to-face contact is catalysing a reset in societal norms. From education to medicine, from religion to business – the whole world, at least for these few weeks and months, is having a taste of full virtualisation. And for many, it has turned out to be “not that bad an idea”. Where decisions would have previously been deferred to a face-to-face meeting of a committee or a board of directors, Covid-19 lockdown measures force individuals and businesses to confront the reality that waiting for the next available chance to convene a face-to-face meeting would mean months of decision paralysis. The excitement around tele-conferencing and remote work companies like Citrix and Zoom (including this particularly hilarious episode, which has now drawn the attention of the SEC) has been evident, but more important is the change in culture. Whereas employers were traditionally obsessed with keeping their employees in sight at all times, demanding daily attendance at the office, that distrust is now being proven wrong, as teams working from remote locations all across countries (and the world) start demonstrating that they are indeed responsible individuals that don’t require an overseer breathing down their neck in a centralised location.Additionally, the acceptance of digital substitutes where physical copies were previously mandatory (e.g. contracts, board resolutions, digital signatures etc) brings up new issues of authenticity, verification, privacy and security that present huge opportunities in the future. Blockchain, anyone?

Working from home.

As “working from home” becomes the norm rather than the exception, concurrently with “schooling from home” and “basically everything else from home”, a new set of challenges (and opportunities) has arisen. While the current situation excludes any service providers (e.g. nannies, cleaners etc) visiting homes, that restriction will eventually pass. And so, too, will children being home all day.And when all of that has reverted to relative normalcy, the only memory of “working from home” will likely be the convenience of not having to spend hours commuting to and from the office, which itself happens to be located right in the middle of a crowded city. If productivity hasn’t been harmed by working from home, and the children are back at school, working from home becomes a bit of a haven. And with more “working from home” comes more de-centralised expenditure on the local high street, rather than being simply limited to city centres.Living near a commuter train station stops looking like a top priority in real estate searches, a daily commute (and the annoying, unhealthy food offering at train stations) no longer a daily feature and the prospect of living somewhere nice rather than just convenient becomes much more palatable. Think about the distribution of real estate development opportunities outside of traditional favourite areas like London, New York, Hong Kong, Sydney and Tokyo!

Real Estate.

Changes in real estate preferences occur not only for employees in terms of where they live, but also for corporations in terms of where they locate. Sure, that swanky downtown office is probably still necessary – but perhaps just 3 floors of the skyscraper, rather than 12. Non-client facing operations have in the past two months, especially in Asia, been moved to remote sites in accordance with Business Continuity Programmes (BCPs) - manuals that were written years ago, tested annually but never believed to be able to become common daily practice. For many companies, including many financial institutions, moving trading and execution services to remote BCP locations, far from corporate headquarters, while daunting at first, has become normal. Many of these locations are in data centres far off from the city centres – some of the contingencies that BCPs prepare for include war and airstrikes, although it’s hard to imagine demand for financial services booming in times of war.In the post Covid-19 future, could commercial real estate and grade A office space become seen as an unnecessary luxury? Perhaps. The likes of Carl Icahn are going for commercial real estate plays given a perceived risk of default. We think the risk is more one of redundancy.

E-commerce.

For years now, e-commerce has been gradually chipping at bricks and mortar retail. The challenge so far has been for e-commerce players to emulate as closely as possible the key features of real-life retail: free returns so that apparel can be tried on, chat rooms where shoppers can talk with advisors before buying, same day delivery so that purchases can be used as soon as possible.Suddenly, the one thing that e-commerce could never replicate – physical proximity – became its greatest asset. Rather than risk infection from standing for hours in a long queue outside a supermarket, ordering groceries for delivery has become the norm. For years, retailers have been expounding the benefits of home deliveries – convenience for shoppers, easier logistical coordination and lower costs for retailers – to no avail. The logistics infrastructure was already being put in place, but the problem was that mass adoption was slow.All they needed was a viral outbreak to make home deliveries go, well, viral. Retailers would never have, in their wildest dreams, imagined the day they would have to turn down new online shopping accounts.

Entertainment.

Cinemas – closed; bars – closed; concerts – closed; operas – closed; theme parks – closed.Rightly, the market believes that keeping everyone indoors is a boon for entertainment platforms like Netflix and Disney + (losses from theme parks shuttering notwithstanding). For the more innovative of the lot, there is now Cloud Clubbing, a collaboration between the great Singaporean clubbing institution Zouk and gaming equipment maker Razer. But most significantly, for the first time, forced confinement of entire families in their homes allows parents to pay proper attention to what we believe is the biggest emerging theme in entertainment: video games.We’ve written about the increasingly immersive nature of video games before, helped by the ever-increasing ability of graphics processors to churn out lifelike computer renderings of gaming environments. And while Netflix had an attempt at making a film where the viewer controls the outcome (Bandersnatch), along with a few child-friendly episodes of Bear Grylls (You vs. Wild), the reality is this: it would be much easier for computer generated graphics to catch up with real life, than for real life to catch up with computer generated graphics.Good news for actors and actresses, and most of all, Bear Grylls, who (despite help from support crew in his filming) still had to film every possible outcome chosen by viewers, including potentially being fed to a crocodile (sort of).

Sports.

For many sports fans, dealing with the sudden disappearance of annual sports fixtures runs the risk of causing a second existential crisis. The shuttering of an entire season’s worth of games, including the Olympics this year, is a testament to the severity of this viral outbreak.In some cases, interesting alternatives have been proposed: Formula 1 has postponed live races and replaced them with non-championship-scoring virtual races, featuring the actual drivers racing each other in a simulator. Given that there is zero chance of a deadly collision involving drivers in a simulator, the question becomes one of whether more races could go virtual. There is, of course, no substitute for the engineering and aeronautical value of pushing cars to their limits on a track, nor for the sound of an F1 car speeding down a straight and decelerating through 6 gear changes from top speed. But for everything else, Formula 1 or otherwise, virtual just got real, including gym sessions for eSports athletes (yes, terminology matters).Already, eSports leagues featuring gamers competing for prize pots that dwarf “traditional” grand slam sports have gained prominence in the past few years. The largest of them all, Fortnite, has a world cup prize money pot of US$30m, almost matching the £36m of Wimbledon and triple the US$11m of the PGA. This is a gargantuan amount compared to the US$20k offered at the World Cyber Games of years past.

Opportunity knocks.

As always, we’d be the first to admit that our guesses for what the future holds are as good as anyone else’s. There’s no way we can tell for sure what the next few years holds, but the same way we’ve constructed our investment process to take into consideration the multiple paths the future may take, we keep our minds open to the possibility that we could be completely wrong about these 8 hypotheses. Perhaps only a few will materialise, perhaps none, perhaps something that we can’t even imagine, perhaps something big enough for another of Tim Urban’s DPUs to happen.

We think of aftermaths in a negative sense. But on the contrary, a profound structural reconfiguration of the economy might be just what we need to get ourselves out of a state of stagnating productivity growth fuelled by debt and easy money.

These are tough times all around the world, but the few things we can lean on in times of crisis are human creativity and ingenuity. The virus, too, shall pass. But in its aftermath could be some of the most exciting opportunities of the next few decades.