Work, Cities, and Offices in a World of Infinite Choice

First, a couple of updates:

1. Rethink with your ears:  The audio version of Rethinking Real Estate is now available on Audible. Get it here.
2. Rethink in Korean: Later this week, the Korean-language version of the book will be published — and will be available for purchase here.  

Last week, I spoke at Pi Capital about changes in the labor market could mean for cities, offices, and income inequality. My 9-minute presentation was followed by a longer chat with Ahmed Hussain about investment, real estate, careers, and more.

Ahmed is Head of Family Offices - EMEA at Neuberger Berman. He writes an excellent newsletter about finance, technology, and life which I highly recommend.

A video of my presentation and our talk is available below. For those who prefer to read, I also included a transcript of my talk with a selection of relevant slides.

Good afternoon everyone. I'm here to talk to you about the future of cities and buildings. To do that, we will spend the next ten minutes talking about something completely different: We will see what the world of digital media can teach us about the world of physical locations.

We begin with Jeffrey Katzenberg. Katzenberg is one of Hollywood's most successful executives. He served as the Chairman of Disney, Co-Founded Dreamworks, and produced some of the most successful films of all time. Katzenberg has a knack for picking winners. He knows what people want, and he knows how to give it to them.

But the world is changing. People are consuming video content on new types of devices and channels. Katzenberg looked at what's available and figured he could do better. In January 2020, he explained to a journalist that Netflix and other tech companies are nice, but they can't create the kind of stuff that old Hollywood can create. Jeffrey wanted to show them how it's done.

Since Netflix already dominated the TV and computer streaming world, Katzenberg realized the next new frontiers would be mobile video. He came up with an idea for a new mobile app that will serve only short videos. He called it QuiBi a portmanteau for "quick bites."

QuiBi would show short films and episodes produced specifically for the mobile world — using that special sauce that only Hollywood had. Katzenberg called it: "The third generation of film narrative." The plan made sense. Now it was time to turn it into a reality.

He put together a dream team. He lined up $1.4 billion from the world's largest investors and media companies. He brought on an experienced tech CEO. And he signed exclusive partnerships with the leading directors, actors, and celebrities.

QuiBi had the best technology, management, and talent that money could buy. How did it go?

Not too well. The app launched in April 2020 and couldn't get off the ground. In less than six months, the business shut down. It was one of the most spectacular failures in tech and media history. Management pinned the failure on COVID 19. They said people were just not commuting and didn't have time to watch short videos.

But at the same time, the popularity of another short video app was going through the roof. That other app, TikTok, was developed by a Chinese company.
In the battle for America and Europe's attention, a group of Beijing-based engineers defeated Hollywood's finest.

How could TikTok's team figure out which videos would do well in a completely foreign market?

They didn't even try. Instead, they built an algorithm. When you log in to TikTok, the app doesn't ask you to search for what you want. It simply starts showing you videos that its algorithm assumes you'll like. Your reaction to the first videos helps the app learn more about you. And pretty quickly, it can show you a never-ending stream of videos that will keep you hooked to the screen.

How do you compete with that?

Jeffrey Katzenberg could have done many things better, but his most significant handicap was that he had a scarcity mindset.

In the world cinemas, films can only be shown in a limited number of locations. As a result, only a small number of movies can be distributed each year, and only a small number of stars and productions capture all the views and all the revenue.

In such a world of scarcity, you win by monopolizing the biggest stars and investing in a handful of quality productions that cater to the mainstream. But in the mobile world, there are different rules. Every person has a screen and a camera in their pocket. As a result, billions of videos can be viewed and created at any given moment. This is a world of abundance.

In such a world, there is room for many more titles and performers. And most of these titles and performers do not aim for the mainstream. Instead, they cater to a multitude of very narrow and very specific audiences.

In a world of abundance, you win by catering to a specific niche or by building a giant platform that allows others to do so. This process was first described in Chris Anderson's 2006 book about the economics of digital media.

Ok. Online media is online media. But what does this whole story have to do with us?

Over the past two decades, we've lived in a world that Richard Florida described as "winner-takes-all-urbanism." This was a world where the most valuable employees and companies had to be concentrated in a small number of superstar cities and locations.

The consensus among urbanists was that this is the new paradigm for the 21st Century: knowledge employees would continue to concentrate on a handful of locations because this is the only way in which knowledge work can be performed.

The world of "winner takes all urbanism" and superstar cities is a world of extreme scarcity — quite similar to the old world of cinemas and its own superstars. But now, we are starting to see that people can access good jobs from almost anywhere.

And technology is creating new ways and new tools for people to be "present" without being in the same place. These tools are still limited, but what we have now is only the beginning. The pace of technological change — and the availability of speculative capital — means that many new tools and consumer behaviors will emerge over the next decade.

And yes, many people will continue to work and socialize the old way. Even so, remote interaction will have dramatic effects on the way people use physical space.

Consider that the offline retail industry was decimated after barely 12% of existing activity moved online. And that was a predictable change that happened gradually over two decades.

So — What happens when more people can work from anywhere? We'll see how it plays out. But the evolution of digital media offers two important hints.

The first one is obvious. If people have more options, then more people will exercise these options. This does not mean that everyone will move to the countryside. But it does mean that demand for workspaces will be redistributed even within cities. People will want to access spaces in different parts of the city for different purposes. They will also work in spaces that were previously not considered to be workspaces at all.

While we don't know where people will go, the critical thing to note is that people now have a choice. This means that real estate and placemaking are becoming a completely different game. It is no longer a game of monopoly, where winning is about capturing a good piece on the board and then collecting a check every time someone walks by.

Instead, it is becoming a game of chess — a much more complex strategic environment. The squares you control still matter, but you have to continually think about what everyone else is doing on all the other squares. In my book, I dive into what this means in practice and what you should do if you want to win this game.

But before I finish, I would like to mention another book and touch on the second consequence of working from anywhere.

In The Black Swan, Nassim Nicholas Taleb makes a comparison between scalable and non-scalable occupations.

Non-scalable occupations are the ones that must be performed in person and are constrained by geography. A doctor, for example, can only be in one place at a time.

Scalable occupations are those that are not constrained by the physical world. A movie star or an author can reach millions of people at the same time. Scalable occupations offer more upside, but they also offer more risk.

The distribution of rewards tends to follow a power-law distribution. Meanwhile, the rewards from non-scalable occupations follow a more normal distribution.

In the 20th Century, most middle-class occupations were non-scalable. They had to be performed in person, in an office. Our cities and employment areas are still built for a world where a big middle class has to work around a concentrated core.

What happens when all occupations become scalable?

I'll stop here. Thank you for your time.