Stewart Robertson, Senior Economist at Aviva Investors, comments on the rising stock of invisible assets.
Stewart is responsible for economic research and analysis of the UK and main European markets at Aviva Investors. Before joining us, he specialised at Lombard Street Research as a UK economist, and held positions at Coopers & Lybrand and Unilever. Stewart has a BA (Hons) in Economics from Liverpool University and an MSc in Economics from the London School of Economics and Political Science.
Investment in invisible assets such as data and design is now bigger than in physical things such as machinery and factories in many rich economies, including the US, the UK and much of Western Europe. But what does this mean for companies, markets and economies?
Picture a gym. You’ll probably imagine a room cluttered with dumbbells, running machines and yoga mats. But one of the most influential players in the gym industry owns hardly any solid assets at all.
In the mid-1990s, New Zealand-based Les Mills International created Bodypump, intensive workout routines synched to music. New cheap video technology meant the company could expand rapidly. They filmed routines and sent them to instructors beyond New Zealand, who had completed an online course to get a Bodypump license.
Bodypump now has four million participants a week across 55 countries.
The value of this lucrative business lies in a mixture of elusive things: marketing savvy, intellectual-property rights, music-royalty agreements and a flair for high-tempo choreography. It has been able to grow far more quickly than a traditional gym, which would need to stockpile more weights and cross-trainers – more gyms – to attract more paying customers.
Bodypump reflects a wider trend. Across different sectors and countries, companies are investing in unseen assets such as design, data and intellectual property.
The rise of the asset-light
As websites and apps replace shops and offices, asset-light firms such as Uber and Airbnb are outpacing their rivals.
Amazon, Facebook and others are using the unseen forces of data and artificial intelligence to grow at an amazing speed and scale.
We have seen economic change throughout history. Think railways supplanting canals, computers replacing typewriters. What makes this latest transition significant is that invisible assets are difficult to reduce to figures on a spreadsheet. It is hard to count what you can’t see.
This problem is compounded by the fact many invisible assets are what economists call ‘public goods'. Millions of people can use them at the same time so who really owns them?
How do you value and protect invisible assets?
Invisible assets give investors a new problem: how do you judge the true value of the unseen and the unowned?
Take Netflix. As of 31 December 2017, the firm said that it owned property, plants and equipment worth $319 million. Yet the stock market values the company at almost $150 billion.
The difference lies in the company’s invisible assets – brand value, content library, recurring subscriptions and vast stores of data on its billions of users.
For insurers, too, unseen assets present new questions. How best to run their own increasingly data-rich businesses? How best to insure businesses like Bodypump, whose needs extend beyond buildings, contents, and people insurance?
Ultimately, there are few hard and fast rules for navigating the intangible economy. The landscape is changing fast, and the old waypoints may no longer be a useful guide. One thing is certain: there is no going back. For better or worse, we are living in an immaterial world.
More of our Perspectives
If they're in your device ... they're under your skin
9 Nov 2018
"I struggled for money this month and tried to dig myself out – loans, credit cards, extra work. Then I got an email from my bank offering me a credit card with a long interest-free period. I put my details in and waited for a response ...
Millions sleepwalking towards “less than minimum wage” at retirement
14 Sep 2018
... as private sector pension contributions fall.
Will the UK give electric cars the green light?
10 Aug 2018
Why we can’t be bothered to go electric.
The decline of trust
16 Jul 2018
Flawed humans more trusted than perfect machines.
Happy 70th birthday, UK state pension...
5 Jul 2018
You’re more important than ever before.
Our response to the FCA's retirement outcomes review
28 Jun 2018
Responding to today’s final report of the FCA’s Retirement Outcomes Review, Alistair McQueen, head of savings and retirement at Aviva says:
Who wants to live forever?
22 Jun 2018
Andrew Scott is co-author of the best-selling book 'The 100-Year Life'. In this interview he considers the implications of increasing life expectancy for individuals, companies and policymakers.
Put your money where your mouth is, urges Mark Wilson
18 Jun 2018
Matching the economics to the ambition of a sustainable food system.
China: a fascinating story of disruption
15 Jun 2018
From Babylonians to Millennials and beyond… Alex Kimura Chief Strategy Officer, Aviva Asia shares his thoughts on why China is primed for digital disruption.
Men’s Health Week: spotlight on sugar
13 Jun 2018
63% of men in the UK are overweight.
Confession: my inexcusable plastic habit
5 Jun 2018
Is legislation the answer?
Insurance fraud is a victimless crime...
29 May 2018
Unless you’re the victim (and we’re all victims).
Can Aviva see into the future?
18 May 2018
Chris Wei reviews an internal research summary from 1995 which looked into key technology trends that would influence the future of the insurance industry to see how accurate we were.
8 May 2018
New technologies that would once have seemed the stuff of science fiction fantasy are quickly becoming reality.
“Sorry, darling, the freezer’s broken”
27 Apr 2018
How would you spend your last few pounds?
20 Apr 2018
Millennials are thought of as self-absorbed tech-addicts. But their approach to spending and saving is set to reshape companies, markets and economies.