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Seismic shifts: firms boosted by behavioural change sped up by Covid.

October 2021

Key points

The pandemic has accelerated changes to consumer behaviour, highlighting how progress can often be explosive, as Kirsty Gibson, joint manager of the Baillie Gifford US Growth Trust, explains.

Illustration by Anna Higgie


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This article originally featured in Baillie Gifford’s Autumn 2021 issue of Trust magazine.


Investors who want to make sense of today’s hyperactive stock markets should turn off the financial news and ponder what fossils can tell us.

One of their key messages is that change is not a smooth process, according to Kirsty Gibson, joint manager of the Baillie Gifford US Growth Trust. “Just as certain events seem to set off bursts of evolution in the natural world, so the pandemic has accelerated disruption in the business world,” she says.

To help put the current frenzy into perspective, she points to the notion of ‘punctuated equilibrium’ – a theory which proposes that evolution proceeds in jerks (see box at the bottom of this article). The punctuationists suggest long periods of relative calm in the natural world are interrupted by rare upheavals in which new species spring into being and displace yesterday’s champions.

Something similar seems to happen in business, too. For years, a handful of companies might dominate a given niche. New challengers may be gaining strength in the background, but it often requires a shock – like a technology shift or a regulatory crackdown or, yes, a pandemic – to give these upstarts the chance they need. Once that happens, old hierarchies crumble.

The advertising industry provides a fine example. For decades, marketeers poured money into network TV. In the case of the most highly watched events, such as the Super Bowl, advertisers bid months ahead for prime ad spots.

This approach was riddled with inefficiencies. Advertisers had to commit themselves far ahead of time. They were forced to bid to reach a large number of viewers, not necessarily the individuals most interested in their products.

Enter Covid-19. Locked-down consumers could no longer flick on many of their favourite sports events or watch new episodes of shows on network TV. They left scheduled TV behind and flocked to streaming services such as Netflix, Disney Plus and Roku, as well as to social media, apps and specialised websites. The surge of new viewers online provided a bounty of new advertising opportunities, not to mention a gusher of fresh data on the interests of individual consumers.

Among the beneficiaries of the evolving media ecosystem has been The Trade Desk, a media-buying company that allows advertisers to purchase digital ad spots across a range of platforms – social media, TV and websites. The company uses data that targets individual viewers far more precisely than the broad-brush approach of network television. Even better, the service operates in real time, scanning millions of available ad spots and putting them up for auction.

Its up-to-the-second pricing has the potential to transform the traditional buying dynamic. Consider an ad spot in a possible overtime period of the Super Bowl. Under the buy-ahead system, such a spot would be regarded as an afterthought, because no one could predict months ahead if the game would go into extra time. But with The Trade Desk, an ad spot during that period would go up for sale as the drama unfolded on the field. Advertisers could bid on the spots knowing just how intently they would be watched, and by whom: The Trade Desk’s database allows companies to seek out and sell to the precise target audience for the advertised product. “Trade Desk allows for more efficient pricing of these spots because it gives advertisers a way to see the potential return in real time,” Gibson says.

It often requires a shock… to give these upstarts the chance they need

The company is just one of several investments in the US Growth Trust that have found themselves on the right side of pandemic-accelerated behavioural shifts, notably the jump in online activities of all sorts.

Wayfair is an online furniture retailer that has worked for years to convince consumers to buy home furnishings from a website instead of a physical store.

But lockdowns forced consumers to find new ways to shop. Wayfair’s sales soared as people flocked online. Initially, the new shoppers focused on home office gear, but their buying spree soon spread into other categories as well.

“Once people got over the initial hurdle of going online to shop for furniture, they began to appreciate the convenience, and realised they were actually enjoying the experience and trusted the process,” says Gibson. “That has led to behavioural changes that are likely to last.”

Another beneficiary of the pandemic is Pinterest, the social media site that allows users to pin images of intriguing products, food and fashion to personal online boards. US Growth Trust invested in the company in early 2020 when it became clear the site offered unique insights into what consumers were thinking – a valuable asset when lack of in-store shopping gave retailers few alternative ways to gauge developing fashions.

“Pinterest is the shop window of the internet,” Gibson says. “It allows retailers to see trends and gather data on what people are planning to buy, or at least considering.”

She sees it as an example of how the pandemic has accelerated transitions that were already underway. “All the themes we think are inevitable over the next five to ten years have gone into high gear,” she says.

The key for an investor, Gibson says, is putting up with the herky-jerky nature of this evolution – the punctuated equilibrium of capital markets, so to speak. “Progress may be faster or slower at some points than you expect,” she says. “But we think certain structural changes, like many of the ones we have seen brought forward over the past year and a half, are inevitable. That change is fundamentally what we are investing in.”

Growth spurts

When you shake tomato ketchup out of its bottle, nothing moves for a while. Then everything does. This sums up the theory of ‘punctuated equilibrium’ proposed by US palaeontologists Stephen Jay Gould and Niles Eldredge in 1972.

According to the theory, a species of animal or plant remains stable for tens of millions of years, followed by a sudden burst of rapid transformation when some members of the species adapt and evolve into something new.

Gould and Eldredge’s reading of the fossil record was seen as a major departure from the concept proposed by Charles Darwin, who described evolution as a gradual, steady accretion of adaptations.

Punctuated equilibrium remains controversial among evolutionary biologists – ‘rapid transformation’ is hard to define in the context of geological time. But outside its original field, the theory has been widely adapted to explain the tendency of systems to alternate between prolonged stability and brief bursts of transformation. Subjects as diverse as political science, linguistics, economics and investment have all borrowed the theory as a way to describe and explain the fitful nature of progress.


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