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The era of the global digital giants

by the Team Global Equities/ Absolute Return Multi Asset,

Digital transformation is not something that will happen in the future, but rather in the here and now. Its speed is breathtaking. Because digital stands for modern and efficient. The speed at which various technologies have become established also highlights the digitalisation of society. An increasing number of processes are being carried out on the web and, from a global perspective, the economy is investing heavily in the digitisation of its business models. At the forefront of this development are those US or Asian companies that recognised the signs of the times early on and forged ahead. Platforms like Alibaba, Amazon, Apple, Facebook, Tencent or Samsung. They have achieved what until recently seemed unthinkable to many. From zero to one hundred in record time.

Bigger, faster, further. It only took Facebook, the social networking site, 4.4 years to pass the 100 million-user threshold. The popular online service Instagram, launched 10 years ago, reported that it had already reached the 1 billion active users per month mark by the summer of 2018. In June 2013, it was "only" 130 million users per month. A phenomenal growth.

And while many merchants have been fighting for their existence during the coronavirus crisis, the booming trade on the net and thriving cloud services have brought Amazon sizable business growth. These are not isolated cases. As designers of the future of the 21st century, the digital giants are in the fast lane. And what about us here in Europe?

Europe on the defensive

A recently published comparative study illustrates the dilemma. While many of the opportunities of digital transformation are preached all over the country, other nations are simply faster in digital transformation and are therefore pushing Germany out of the top 10. Only the Walldorf-based software company SAP is among the top 10 platforms in terms of sales figures, although the gap between them and the digital giants is striking. This is partly due to the fact that we are below the EU average in terms of start-up investments. Compared with venture capital investments in the US and also in the emerging China (where every third unicorn is now born), on closer inspection, the funds invested on the old continent turn out to be rather meagre according to surveys by the German Private Equity and Venture Capital Association (Bundesverbands Deutscher Kapitalbeteiligungsgesellschaften). This results in a comparatively weak digital infrastructure and too few platform companies with an international reputation. A sound competence in digital business models is indispensable for long-term entrepreneurial and economic success.

However, financial resources are not the only reason that Europe is lagging behind in international comparison. Why is there no German or even European Google? Probably for the same reason that we are not leading the way in e-mobility. Our concerns and a tight set of rules stand in our way.

A recent example of this is the development of the coronavirus app by the software group SAP and Deutsche Telekom.  By German standards, particularly with regard to data protection barriers, it was developed in record time and is perhaps proof that we can indeed do digitalisation. Only the number of downloads, and consequently the generation of users, still leaves a lot to be desired and the question arises as to whether the overall benefit for the population is not apparent. In contrast, there is - and this is a provocative example - a product like Pornhub, which managed to generate 50 million users within 19 days of its launch.   

Platform decade

"Data will become the most important commodity of the future. […]  Digital platforms are turning the global economy on its head," said Federal Minister for Economic Affairs and Energy, Peter Altmaier at the Digital Summit last year. No one can get around digital platforms anymore; they are changing the economy forever. The decade of the platform equities has long since begun. The secret of their success is simple. Platforms obtain as much information as possible about their customers and their consumer behaviour. In other words, the consumer takes centre stage and digital ecosystems anticipate and align their business strategies with customer needs.  They know in advance, so to speak, what the buyer really needs. When implemented consistently, they are in the extremely comfortable position of occupying a market-dominating position and can exploit their competitive advantages over traditional linear companies (higher profitability, strong sales growth also based on more R&D investments).

Yet their story is far from over. These structural trends are continuing to gain momentum in areas such as cashless payments or online consumption. Digital structural changes that we saw before the crisis will become even more pronounced in the future, with the result that there will be profound shifts in the ranking of the world's largest companies. The U.S. and Asia are dominating; Europe is starting to lag behind.

Therefore, it is worthwhile taking a global, not locally centred view of investments with a focus on structural trends. In this context, digital platforms as the winners of digitisation are a striking example.

The Global Equities/ Absolute Return Multi Asset Team, led by Fund Manager Frank Schwarz, manages the MainFirst Global Equities Fund, MainFirst Global Equities Unconstrained Fund and MainFirst Absolute Return Multi Asset. In all three funds, they invest in structural investment themes. One of these is platform models, whose economic potential has often not been sufficiently recognised by German companies. However, as these platform business models continue to gain ground, the fund managers are convinced that their investment approach is also convincing in the long term.


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