Talking Tech

Talking Tech is produced by the Progressive Tech Team of George O’Connor, Ian Robertson and Gareth Evans. Our aim is to bring you up to date with the tech news cycle each week. We comment via blog and podcast on the slings and arrows of the sector at a time of huge change.

<< Back to Talking Tech archive

May 8, 2024

The Experience Epidemic: Hammer time

To a man with a hammer, everything looks like a nail.” We see solutions through a tech lens as we dance to the tune of Maslow (more than MC Hammer).  Adults rate social relationships as their most important source of meaning, purpose, and motivation. Yet social networks are shrinking and have been for decades. The process accelerated during the Pandemic with its lockdowns and stay-at-home orders. Technology adoption also accelerated then and it had a tangible impact on how we live and work from social connectivity, gaming, content sharing, and virality. Tech allows us to be ‘alone and connected’, to be with others, or not, as we chose. It underpins the rise of individualism. We are now firmly post-pandemic – something writ large in the latest pile-up Peloton quarterly results (2 May). That pandemic poster-child sank in the aftermath of lockdowns as ‘going out’ shares soared, but now that ‘uppy/downy’ effect of ‘staying in’ vs ‘going out’ has faded in favour of a more experience-based economy. The thread of continuity is our notion: ‘alone and connected’. For shareholders concerned about pricing power, moat and ‘stickiness’ note; (i) people value experience more than stuff, (ii) people spend more on experiences than goods and, return for second helpings. (iii) The UK has no shortage of bargain shares, but investors learning from the Pandemic will seek companies with strategic tailwinds and recovery momentum. You can touch this (oh-oh-oh-oh-oh-oh-oh). Read on to our review of the Four Realms of the Experience Economy (see inside) where we shine a light on Experience proponents Engage XR, Focusrite, Hostelworld, Pearson, tinyBuild.

Thoughts on the Experience Economy

Commodities are fungible, goods tangible, services intangible, and experiences memorable.” (Harvard Review). The notion of the Experience Economy was coined in a 1998 article by B. Joseph Pine II and James H. Gilmore who described the next economy following the agrarian, industrial and service economies. ‘Experience’ has always been at the heart of the entertainment industry, and the experience-economy pioneer was Walt Disney. But, experience is not the exclusive purview of the entertainer; companies stage an experience whenever they engage customers in a personal, memorable way.

TAM and demand side drivers

  • Continued TAM growth: The Experience Economy, driven by the increasing demand for unique and personal experiences, is projected to reach US$12tn by 2028, US$5.2tn in 2019.
  • Recovery from the pandemic: The Pandemic had a significant impact on the Experience Economy, as the world recovered there was pent-up demand for travel, entertainment, and experience. Consumers favour experiences that are genuine, unique, and rooted in local culture. This has led to the rise of people who seek out authentic and immersive experiences.
  • Greater emphasis on sustainability: With climate and environmental concerns, the Experience Economy places more emphasis on sustainability. Consumers look for experiences that are environmentally friendly and socially responsible. This has led to the rise of eco-tourism and sustainable travel experiences that are designed to minimize environmental impact.
  • Increased use of technology: Technology plays a significant role in the development of the Experience Economy. Advances in multi-modal GenAI, AR and VR make for more immersive and personal experiences.

The investor play book: UK The Experience Economy taxonomy

The Four Realms of the Experience Economy

Experience is two by two

  • Experience is about participation:This can be passive, consider the opera-goer who observes and listens but doesn’t affect the performance. With active participation a customer plays a role in creating the performance, like video gamers. But there is a spectrum of experience: the fan who turns up to watch footie on Saturday afternoon is not completely passive, by being there they are contributors to the visual and aural experience.
  • Experience is about connection:This spans absorption to immersion. Racegoers at the Cheltenham Festival viewing from the grandstand absorb the event, in paddocks the punters are immersed in the sights, the sounds, the smell.

This leads to the Four Realms taxonomy (see below):

Educational events like attending a class, taking a ski lesson involve more active participation, but students (customers, if you will) are still more outside the event than immersed in the action.

Escapist experiences can teach as well as educational events can, or amuse just as well as entertainment, but they offer greater customer immersion. Acting in a play, playing your music, cooking in a hostel, descending the Grand Canyon involve active participation and immersion in the experience.

If you minimize the customers’ active participation, however, an escapist event becomes an Esthetic experience where customers or participants are immersed in an activity or environment, but they themselves have little or no effect on it. Think of the tourist viewing the Grand Canyon from its rim, Windsor Castle from Castle Hill, or a visitor in an art gallery.

Entertainment events such as attending the ballet are highly absorbing but it is a passive activity.

The share selection

The UK market has no shortage of ‘cheap’ shares. For our Experience selection we screened for active and immersive experiences as, in our view, these are more reflective of the post-pandemic societal shift. The list has mostly a B2C and small cap bias and we see them for the medium/longer term.

Focusrite – Creating the Music man

With the ability to enrich peoples’ lives through music, Focusrite is an audio technology company. This is a multi-part business with 13 brands, a global customer across 240 territories. There are six operating divisions: (i) Focusrite sells Focusrite and Focusrite Pro branded audio interfaces, notably Scarlett and Ableton. (ii) Novation sells Novation or Ampify branded products like Launchkey & FLkey keyboards and Circuit Tracks and Circuit Rhythm groove boxes. (iii) ADAM Audio sells ADAM Audio branded products. (iv) Martin Audio sells Martin Audio, Optimal Audio and Linea Research branded products. (v) Sequential sells Sequential-branded products. (vi) Sonnox is a well-established brand of plugins used in a range of audio applications including mixing, mastering, live sound, broadcast, TV and film, and even scientific and forensics projects.

De-coding the latest outlook: Interim results (25 April)

The company suffered from supply-chain related issues relating to product debut which pushes sales into H2/24. This has had a depressing impact on shares, however H2 product launches should reignite momentum. Tim Carroll CEO commented that “with a series of planned product launches in the coming months and a continued emphasis on our strategic growth initiatives, which will lead to a greater weighting of sales in the second half, we remain confident of meeting our full-year expectations.”

Learn more here

tinyBuild – Immersed in the 1000 hour Video Game

Gaming is both immersive and adsorbing. tinyBuild is a global video games publisher and developer with c80 titles across different genres, think horror, action, simulation, and survival, among others. The title portfolio and pipeline includes a focus on multiplayer games such as Secret Neighbor, SpeedRunners, Pandemic Express, Deadside, the upcoming Rawmen, Streets of Rogue 2, Kingmakers, Level Zero.

De-coding the latest outlook: Final results (23 April)

2024 sees the video games industry adopt differing strategies to rekindle growth. tinyBuild has a newly strengthened balance sheet, support from games royalty Atari, a lower run-rate cost base, full and final legal settlement, a slate of new titles featuring ‘bangers’ (Steam). The new development model gives 1000-hour games from an Indie cost model and these enable games to become a self-standing franchise which can be expanded into adjacencies. It is time to draw a line under 2023, a ‘Black Swan’ year across the US$211.2bn video gaming industry as it buckled under the strains of weak demand. The soggy consumer environment fed a lack of funding, game debuts pushed back with the inevitable consequence on revenue growth, jobs and industry-wide restructuring.

For tinyBuild the pipeline for 2024 includes a number of larger-budget (above US$1m), high-potential games alongside continuous investment in the catalogue including updates, DLCs and platform launches. While guiding that the company is on track to deliver results in line with expectations CEO Alex Nichiporchik sees “early signs of success in our shift towards the 1,000 hour game and we will continue to experiment with the aim to add additional revenue streams to our core business.”

Learn more here

Hostelworld – Sustainable travel

Hostelworld is a global OTA focused on the hosteling category. The Company provides software and data processing services that facilitate hostel, B&B, hotel and other accommodation bookings worldwide. Its accommodation includes hostels, hotels, and bed and breakfasts located in Europe, Asia, North America, South America, Oceania and Africa. It facilitates through a series of social features on its platform that connect its travellers in hostels and cities based on their booking data. It has hostels in over 180 countries. My daughter tells me that when she stays in hostels, sometimes it because she wants to be alone, and sometimes because she wants to make new connections. Interestingly this sample size of one, dovetails with the key strategic messages from Hostelworld CEO Gary Morrison. Hosteling is about creating new immersive experiences and with the Social strategy this can be as immersive as the traveler wants.

De-coding the latest outlook: Final results (21 March)

2023 good, 2024 even better. In 2023 Hostelworld posted record revenue and its €18.4m EBITDA bested the guidance range, inked a new €17.5m facility with Allied Irish Banks and in February 2024, repaid the €7.5m revolving credit facility drawn down with AIB. In addition, the company launched its ‘Staircase to Sustainability’ framework with the Global Sustainable Tourism Council. This helps hostels to promote the sustainability advantages of their hostel accommodation.

CEO Gary Morrison admitted that the company started 2024 with “strong momentum, and I feel confident that we will continue our track record of profitable growth and value creation for our shareholders.”

Learn more here

ENGAGE XR – Creating immersive experiences

ENGAGE is a B2B-focused spatial computing company (aka metaverse) with a customer base of of 200+ corporations, professionals, education organisations, and event organisers. It has an impressive cient list including KPMG, Pfizer, 3M, Stanford University, Lenovo, HSBC, Pearson, KIA, and many more. Engage has developed the educational virtual reality platform ENGAGE which is used for remote training, collaboration, events, and marketing. The ROI is to enable clients to directly engage with employees, customers, and suppliers in virtual locations and digital twins. ENGAGE has cross platform support for all VR devices, as well as standard desktop PCs, Macs, tablets, and smart phones.

De-coding the latest outlook: Final results (15 April)

In 2023, ENGAGE suffered as a number of enterprise customers decided not to renew contracts or renewed at lower levels and revenue for remote events and collaboration slipped. However, more recently Engage signed four of its largest ever contracts, including its first seven-figure deal (early 2024) with a large Middle East based company.

CEO David Whelan talks about improved GTM from working with partners Meta and Lenovo to develop the business model from single pay entertainment purchases to recurring revenue with a vision for ENGAGE to become “the largest provider of spatial computing services globally”.

Learn more here

Pearson – All of life Education

Pearson is a learning company with its principal operations in the education, assessment and certifications markets. It provides digital content, learning experiences, assessments, qualifications and data in the learning market. Of the divisions: (i) The Assessment & Qualifications division includes Pearson VUE, US Student Assessment, Clinical Assessment, UK GCSE and A Levels and International academic qualifications and associated courseware. (ii) The Virtual Learning division includes virtual schools and online program management. (iii) The English Language Learning division includes Pearson Test of English, Institutional Courseware and English Online Solutions. (iv) The Workforce Skills division includes BTEC, GED, TalentLens, Faethm, Credly, Pearson College and Apprenticeships. At Pearson there is a life-long learning approach which sees a life cycle approach of children to adult and student to worker.

De-coding the latest outlook: Q1 trading (26/4)

Whilst Q1 features good operational progress in all divisions coupled with the company bedding AI functionality “in more than 40 Higher Education titles for the Fall semester” there was a getting betting in H2 narrative as CEO Omar Abbosh commented that “we continue to expect an acceleration of growth in the second half, which will see us achieve our guidance for the full year. We look forward to providing an update on our strategic progress with our half year results in July.”

Learn more here

End note

At the 1996 COMDEX computer trade show, Intel’s Andrew Grove declared, “We need to look at our business as more than simply the building and selling of personal computers. Our business is the delivery of information and lifelike interactive experiences.” However technology can swamp our mental bandwidth, amplify marginalization and discrimination. Furthermore, GenAI has the potential to harm our social fabric at a time when the choice of ‘alone and connected’ could be imposed rather than by choice. There is much opportunity, but also a key role for data & process governance.

The data

More time alone please

Source: American Time Use Survey (Washington Post)

The four realms of the Experience Economy

Source: B. Joseph Pine II and James H. Gilmore Analyst (George O’Connor)

Trends in Social Connection

Source: Office of the US Surgeon General

‘Alone and connected ‘ is bigger among the young: 1. character.AI user by age (n = 20,000,000)

Source: CBInsights

‘Alone and connected’ is bigger among the young: 2. Social media by age

Source: CBInsights

The share selection

Source: Company data, Bloomberg, Yahoo Finance, Analyst (George O’Connor)

This communication is provided for information purposes only, and is not a solicitation or inducement to buy, sell, subscribe, or underwrite securities or units. Investors should seek advice from an Independent Financial Adviser or regulated stockbroker before making any investment decisions. Progressive Equity Research Ltd (“PERL”) does not make investment recommendations.

Opinions contained in this communication represent those of PERL and/or our affiliates at the time of publication and PERL does not undertake to provide updates to any opinions or views expressed. PERL does not hold any positions in the securities mentioned in this communication, however, PERL’s directors, officers, employees, contractors and affiliates may hold a position,  and/or may perform services or solicit business from, any of the companies or related securities mentioned.

Any prices quoted in our research are as at the previous day’s close.