Friends,
I hope that all is well with you and yours, and that this e-mail finds you on a boat with shoddy connection, in the tropics, three months after I sent it.
In today’s slightly different, free-for-all newsletter (I am taking a short vacation with the family; I only get two such opportunities a year), we discuss the importance of breaking the Newtonian paradigm. Also, for everyone, the market vitals including Nvidia’s market cap, Apple’s intelligence and Microsoft’s, well, unintelligence.
Now accepting keynotes for 24Q4-25Q2
Every year for the last decade or so, I have created three main presentation decks. For 2025, however, I have (for the first time) added a fourth due to popular demand. They are:
What to Do When You Don’t Know What to Do: How to turn change into a competitive advantage. (Based on the new book by the same name.)
Pushing the Envelope: How to create and nurture an innovative organization.
Resilient Retail: How to survive and thrive in the modern marketplace.
The Unknowable Unknowns of Artificial Intelligence: How to manage a risk that is inherently undefinable.
If you want to book me for your event, corporate speaking slot, or workshop, merely send me an email. To make sure I am available, please do so at your earliest convenience; my availability is limited and the schedule tends to fill up fast. More information may be found here.
A couple of updates thoughts about Cannes before we go-go
It is somewhat odd not being in Cannes this year, having chosen to stay at home since child number two is on the way and I have a book to finish. Sitting on the proverbial sidelines, one does understand why the festival is considered controversial. Much of the reporting is focused on precisely what so many dislike about the industry; the idea of taking massive yachts and private jets to discuss how digital advertising can achieve a net zero carbon emission target, for example, is entirely reserved for those with an immensely inflated view of their own self-worth.
Personally, I rather enjoy being there, because I enjoy being in Southern France; it is where I spent many summers in my youth. But I fully admit that part of my enjoyment also comes out of being a thorn in everyone’s side by bringing the conversation back to the realities of business.
The festival clearly does have a penchant for horseshit, but in my view, so does most of marketing in general. At Cannes, it merely happens to be dialed up to eleven.
To illustrate, while James and I did our talk on financial trends and the bottom-line implications of e-commerce, Gary Vaynerchuck and Paris Hilton (I mean, Paris fucking Hilton of all people) were on another stage talking about the importance of investing in NFTs for any brand trying to keep up with the modern consumer. One of the talks proved to accurately predict what would come to happen globally over the next few years, and the other had Gary Vaynerchuck and Paris Hilton in it.
I understand that celebrities add a bit of sexiness to the narrative, but most are no more qualified to talk about marketing than marketers are to talk about celebrity. A big name does not equate to a big brain, a big idea, or even a small insight. It just equates to a big crowd and, well, that is all that matters.
Moving on.
The Market AI Vitals
Nvidia has become the new leader of market cap ratings.
With the exception of Amazon in 2019, the race to become the world’s highest valued firm has stood between only two: Microsoft and Apple. This week, Jen-Hsun Huang & Co ensured that was the case no more. After a 3.51% increase on Tuesday (174% in 2024, 3,477% over the last five years), Nvidia (cap $3.34T) inched a nose ahead of Microsoft ($3.33T). As we have discussed previously, it pays well to sell shovels during a gold rush.
However, one ought to also note that the continued prosperity of the business hinges on the continued existence of such a large scale stampede. Although both Microsoft and Apple gain from the AI hype, neither is tied to one particular technology. Nvidia is. In other words, the former are significantly more resilient than the latter. Over time, resilience always wins - and that is true regardless of whether or not AI indeed is a bubble.
(Nota bene, this is why Tesla maintains such a premium despite EV sales plummeting; Musk smartly emphasizes his ambitions to take the company beyond its core.)
New information about Apple Intelligence reveals Satya Nadella had reason to be concerned about OpenAI’s part in it.
As more information has been released, it has become clear that Apple pays for ChatGPT in not in money, but in distribution. As Benedict Evans recently pointed out, this means that OpenAI still has to carry the marginal cost of inference for requests made. Obviously, they hope that the iPhone users eventually will be converted into premium subscribers, but there is no natural conversion process. ChatGPT only enters the conversation when Apple requires a general model to answer a general question (as opposed to a question specific to the user), at which point the device apparently will suggest sending the query to the LLM. None of the other new features uses ChatGPT at all.
To make matters even worse, Tim Cook not only announced the OpenAI joint venture, but also that he likely will bring other companies in to offer the same service at some point in the future. Partly, one would imagine, this is to create a bidding war, but the recent Safari-Google antitrust issues must have factored in as well. Either way, it makes OpenAI’s bet all the more risky.
Meanwhile, Microsoft has its own issues.
Windows Recall, its AI-based hero feature that captures snapshots of your screen every few seconds to enable the ability to effectively search time, was revealed to store sensitive user data in an unencrypted state. As if it would need writing, that is all kinds of unacceptable. Consequently, Copilot+ will launch without its headline act, and although Microsoft has stated that Recall eventually will become available, it has not provided a timetable as to when.
Beyond PC sales, the issue demonstrates how eager companies are to demonstrate the value of AI - even if it comes at the price of things done properly. We have highlighted this issue before, but it is one worth keeping in mind. The right tool in the wrong hands can do a lot of damage, but so can an oversight. If Microsoft, for whatever reason, makes these kinds of mistakes, what are the odds that startups with stressed out investors breathing down their necks will do better?
Breaking the paradigm
What is the point of it all?
While writing the new book, I recently had reason to ponder what a genuinely radical shift adaptive strategy constitutes. The conventional paradigm takes many forms, but all are (knowingly or unknowingly) rooted in the same Newtonian paradigm. Adaptive strategy fundamentally breaks it.
For those unfamiliar with the term, the Newtonian paradigm can be summed up in the ideas of the enlightenment that remain fundamental to our understanding of the universe to this day. Without the scientific revolution that Sir Isaac Newton in many ways started, we would not have such an improved understanding of cause and effect. The sacred was pushed aside, knowledge blossomed, and our power over our surroundings reached thereto unimaginable levels.
But - and this is a very important but - one must also recognize the danger of assuming universality. Theories often prove to fall if taken outside of their immediate domain.
Much like classical physics, though it is rarely considered, strategic management assumes linear causality. Only when we know for certain that input A will lead to output B may we predict and control our environment. Action and outcome have to be linked in predictable, linear, controllable causal pairs. The right strategic choices cause success, the wrong strategic choices cause failure. Increasing efficiency is the self-evident follow-up; if inputs and outputs can be pre-stated, optimization becomes paramount.
Even the criticisms raised against the ways of old rely on the same core assumption. Peter Drucker, for example, once famously wrote in an HBR article titled Managing for Business Effectiveness (1963), clearly referring to Frederick Winslow Taylor’s work, that there is “nothing quite so useless as doing with great efficiency what should not be done at all.” The statement is no more than pointless posturing unless one can ascertain what the objectively “right” things are, which in turn (a priori) must rely on an ability to identify their causal consequences.
Three important corollaries, all of which we have discussed at length over the years, follow.
First, that the world is reducible. All things are explainable by observation of their parts, and the interactions of the parts. Each will have a discreet and knowable position in the action or functioning of the whole. By optimizing the performance of one or several parts, a superior total performance (cost savings, efficiency gains, quality and safety improvements, etc.) may be achieved.
Second, that the world is ergodic; it repeats. Strategy is akin to throwing dice. There is no interdependence; the result of one dice will not impact that of another nor the result of the same dice rolled again regardless of how many times it is thrown. The average performance of an industry is a valuable proxy for any firm within, and the average performance of a large number of workers is a useful characterization of the expected performance of a single employee or a small team.
Third, that the world is deterministic. Particular historical events cause a particular future into being. What will come to be is determined by what has been, much like Newton asserted. In a deterministic world, it stands to reason that as long as one gathers enough data, one may identify key events and predict what tomorrow holds. Notably, this includes circumstances defined by human action and interaction, as they will constitute the inevitable and necessary consequence of antecedent states of affairs. Understanding is prediction. Explanation is prediction written backwards.
Today, entire industries - from merchants of certainty such as consultancies and agencies, to data collectors and optimization providers - rely on the verisimilitude of these conclusions made centuries ago. But they go beyond; the ideas are fundamental to how we have been taught to perceive the world. As long as we do and continue to do the right things right, tomorrow is ours to master.
Unfortunately, as counterintuitive as it may sound to some, pretty much everything is wrong with this belief:
The human world is largely complex, which is to say that it is defined not by causality but by dispositional states and emergence. Phenomena at one level of description are often inherently impossible to explain by phenomena at another level of description. We know, for example, that consumer behavior conforms to negative binomial distribution, but that does not enable us to describe what any one consumer is doing at any given moment.
The human world is largely non-ergodic; there are often points of irreversibility that render repetition impossible. If a strategic bet causes a firm go to bankrupt, it cannot make another.
The human world is largely one of free will. Chance also exists.
None of these facts of reality is included in the original hypotheses. As a result, one habitually sees strategists falsely claim that they can guarantee success; speakers falsely claim that anyone can be the next Google if they just repeat the correct steps; managers falsely believe that instructions not only will be followed, but followed precisely as intended; project leads falsely believing that new ideas only serve to disrupt their project plan. And so on.
All kinds of issue ensue, and the solutions that are most commonly employed are those that created the problems in the first place. We are bound, and continue to bind ourselves, by our own actions.
Adaptive strategy, far more than anything else, is what we may use to break free from the Newtonian paradigm. Unlike conventional approaches, it is not rooted in 18th century ideas but everything that science has learned since. It is the next leap forward.
In the book, we hope to be able to tell you why in more detail. But more than that, we intend to give you the requisite tools and techniques so that you can make the jump ahead yourself.
Premium subscribers who chose/choose the founding member option will get it before everyone else (a signed copy is part of the deal). Everyone else should hopefully be able to find it in a fine bookstore near them in the foreseeable future. We just need to finish the thing, but we are getting there.
Come to think of it, I should probably get back to my writing. Until next time, have the loveliest of weekends.
Normal services will soon be resumed, I promise. In the meantime, happy midsummer.
Onwards and ever upwards,
JP
When is it coming out? I've just started with "Antifragile", to prepare myself.