By Simon Bond 

2015 was the year that investors and citizens (outside technology) worked out that the world is indeed a different place to invest, and to live in.

Where will growth come from in the future?

The global price takers saw their share prices crushed, BHP has gone from $36.00 to $18.00 and wiped out billions of dollars of wealth, RIO Tinto, Fortescue Metals,  Origin Energy, Santos, the list goes on, if you were in the commodities business chances are you didn't enjoy 2015 much at all. And then you had to throw good money after bad as companies came to the market to raise more equity to blow up.

All the while the share prices of the disruptors have continued their upward climb, Google, Amazon, Salesforce, Microsoft, and Apple now dominate the market capitalisation of the US market.

Company management and directors need to ask themselves, “What is the difference between cost and investment

As China shifts from an export- and infrastructure-led economy to one more domestically driven, its impact on other economies will drop. In particular, China’s role as the vacuum for the world’s commodities will continue to recede. 

So what will this mean? Look for the recent nosedive in commodity prices, be it copper and other nonferrous metals, iron ore, coal or other basic materials, to persist.

On the other hand, Chinese food imports may gain as rising personal income levels result in diet upgrades. It takes more grain to turn pigs into pork than it takes to satisfy human nutrition needs directly with corn.

The author Ron Thurnow in his book "Titan" The llife of John D Rockefeller makes some comparisons between the industrial and the internet eras.

Let’s start off by setting the scene of the Rockefeller era. Almost the entire nineteenth century was deflationary, with interest rates and prices falling from the end of the Napoleonic Wars in 1815 through 1896. The only brief exception was the inflationary boom of 1863-1873 in the U.S.—set off by the Civil War.

The rest of the industrial world, however, did not participate in that inflation. In the inflationary boom years of 1863-73, everything went up in value. “This was a period which seldom occurs and hardly more than once in anyone’s lifetime.” Ron Chernow calls it “the most fertile in American history for schemers and dreamers, sharp elbowed men and fast-talking hucksters, charlatans and swindlers.”

In 2016 we will ponder the implications of declining pricing power, unprecedented global business combinations and the deflationary pressures of our times. Some issues to consider when thinking about your future investment strategy are detailed below.

  • A low inflation environment for long time.
  • Low interest rates for a decade. 
  • What is the true cost of free? 
  • Is the business a price maker or price taker? 
  • What is the future of work?
  • Understanding that Investors generally have a fundamental misunderstanding of risk. 
  • Continuing hollowing out of the middle class in western societies.
  • The internet is the most disruptive technology we have ever witnessed.
  • The Internet is deflationary, Uber and AirBNB to name two tap into a market's excess capacity and bring services to the consumer for less.
  • Who are the disruptors?

Banks will close 50% of their branches and shrink the remainder of their branch footprint by 66% over the next decade. 

Those who understand and apply the principles of network economics now have a sustainable competitive advantage over anyone that ignores those principles. Value = (Number of people connected) squared. 

Networks create a winner-takes-all environment where the first company to market with a product or service (whether by luck or as a result of a well conceived strategy) magnifies its advantage by riding the increasing returns phenomena to such a point competitors fail to gain a toehold in the industry.

As the cost of making copies is lowered or eliminated altogether, value is created by abundance rather than scarcity – the complete opposite of traditional business thinking. In the industrial age, scarcity drove value – as much for diamonds and gold as anything else.

In the network economy, relationships and standards drive value – the more people that are involved, the greater the value. 

Since the price of everything is going to fall over time, the only factor which is going to become more scarce in the future is human attention. 

More and more, a firm’s future value will be derived from the network within which it operates. 

Therefore, promoting the network will become as much an imperative as on building the firm itself.

Apply the principles of evangelism. Identify people and organizations with common interests, and approach them to join the network economy along with you. 

The more companies and people you get involved in the network, the greater the benefits that will flow to everyone.

Be proactive and passionate about the future. 

The future of technology is networks. Networks large, wide, deep and fast.

Communication is the economy.

Cloud computing adoption is accelerating, with Amazon’s “value vampire” highly disruptive to legacy IT vendors. Now, Google is raising the stakes, hiring Diane Greene, one of its board members and founder of VMware, to run its cloud business. The announcement follows Urs Holzle, Google’s infrastructure chief’s, statement that the company’s cloud revenue could surpass its $59 billion revenue advertising business by 2020. This implies huge potential growth for Google’s cloud business, which is a fraction of Amazon’s size.

In this ever changing world of exponential evolution, last year’s innovation is next year’s stagnation. Remaining relevant requires perpetual processes of innovation at the intersection of emerging technology and evolving customer preference. 

QE creates deflation as free money encourages excess capacity and technological innovation. 

Central banks have attempted to create inflation, but inflation rates are falling globally, and no central bank has yet been able to meet it’s inflation targets.

Millennials are into the experience economy, they don't want stuff and things they want experiences, this generation are getting married later, having children later, and less of them by the way, this will have enormous impact on retail and associated businesses. 

Global demographics. Germany, Italy and Japan now have higher death rates than birth rates. 

The zero sum game. It is crystal clear that what we are seeing on a massive global scale is the new economy cannibalising the old economy. In some cases this trend is so powerful that total revenue growth in many sectors, IE retail, has actually declined. Online and offline revenue together has shrunk as the new attack the old. In other words a zero or negative sum game. As the new economy cannibalises the old economy growth keeps getting harder and harder to come by. 

Many large businesses have seen "peak profits", and may never see anything more than low single digit growth, if any growth at all.

Many public companies these days are managed by CEOs who run with the hares and the hounds. They succumb to the interests of the few who are in business for the quick turn and have no interest in growth or creating employment. 

What is The future of work?

Relationship building, teaming, co-creativity, brainstorming, cultural sensitivity, ability to manage diverse employees, right- brain skills of social interaction, those in accountability roles, interaction jobs, and those able to build relationships (“the most valuable people are increasingly relationship workers”).

Ongoing disruption. Many of the commercial activities facilitated by the internet suppress growth and job creation in traditional businesses that have long supported the economies of the developed world, and this is an ongoing and hugely disruptive trend.

Information now travels at the speed of light. And it travels everywhere.