The Future of Experiences

This article was originally posted on michaelsutyak.com.

As parts of the world slowly open up after lockdowns, there remain a lot of question marks about how people will behave coming out of shelter in place and quarantine orders. Even given the green light from their political overlords, will people start filling planes, dining at crowded restaurants, and attending crowded events right out of the gate? Will the impact of this virus have come and gone like certain people in the US hope it will?

Right now, it’s hard to say. You have loud voices on either end claiming their point of view is the one to follow. Doomsayers claim that this will be the end of modern cities, maybe the end of human interaction in general in a physical sense. On the other end, you have folks considering this virus to be but a blip on the radar, and shouldn’t change behavior at all. Sure we’ll lose a percentage of the population, but for the majority of healthy adults, this shouldn’t change a thing.

Or will it? That’s what I want to explore here, namely when it comes to experiences as there are few sectors that have been rocked as hard or as fiercely (aside from travel of course — which I consider closely tied to experiences). Prior to the great COVID flood of 2020, the Experiential space was growing at a rapid pace, mostly on the wings of millennials who have shunted goods for great experiences.

(Just Prior) Current State of Experiences?

Experiences at their core are a form of entertainment — so this question generally spills over into the wider question of what entertainment will look like in the future.

Prior to the shut downs and distancing orders, experiences were growing at a rapid pace. In lieu of cars and homes, millennials have chosen to spend a significant portion of their earnings on experiences.

This doesn’t just extend to millennials though. A whopping 74-percent of Americans are prioritizing experiences over Products.

There could be a number of reasons for this. Perhaps the fierce brand loyalty that permeated the boomer generation hasn’t trickled down to millennials. However, this isn’t likely based on the data. The mediums may have changed, but the brands remain the same. Certain influencer brands hold more eyeballs than ever. Nike still sells shoes by the truckload.

A more likely explanation is that experiences lead to real human connection, and longer lasting satisfaction. The very thing that social media purported to do — connect folks — has driven people to seek connection elsewhere.

Lastly, but certainly not least, things have become less of a status signaling device. That has transferred over to experiences. Taking pictures and video and sharing that you were in a certain location, with a certain group of people, or at an exclusive event are the new ways to signal status. Showing off your new TV or car (ok, maybe a Bugatti would get some attention) isn’t very cool anymore — because they are so ubiquitous. This bears out when we see people interacting more with experiential content on social media.

This move away from buying “things” has coincided with the rise of the sharing economy. Screens, cars (with the increase in ride-sharing), and even homes (with the ease of rentals and Airbnb granting access to homes) have been commoditized. Movie-picture quality screens are now available at affordable prices. Why buy a car when you can take an Uber or a Lyft? Self-driving Teslas operated by the city or a private corporation are more likely to be your mode of transportation in 50 years than your own Porsche — even if you have the means. Why own a home when you can rent almost any home in any location and experience an area that way?

Spending money on experiences also leads to more lasting happiness than purchasing products. Passive experiences, like watching movies, etc.. have been transferred to the home almost entirely (Netflix’s ~$200B market cap speaks to that). Prior to COVID, millennials were seeking out active or live experiences like foreign travel and live entertainment.

There are two main segments in the experiential space: what Airbnb likes to call the “Big Red Bus” and the unique experiences creating entirely new environments and interactions.

The “Big Red Bus” experiences are dominated by Trip Advisor and Booking.com. They’re fairly generic, and there is generally nothing unique about them. These are the tours that show you the major sites with a guide that can give you some context you could find on your phone (unless you get an amazing guide). There is still a big market for these, as travelers want to feel they have “checked the boxes” when they go to a certain place for a limited time.

If you were going to give this type of experience a score from 1 to 10 on difficulty to access, this would be a 1. If one of these companies ceased to exist, you would find another one that would give you a similar experience with a competing company.

The other type of experience is centered more around unique, difficult to find and access experiences that tend to be more interesting to a millennial audience. These are either provided by a host or a collective that build unique worlds or experiences from scratch. The largest scales of these are music festivals like Coachella and large gatherings like Burning Man.

But there was an interesting bubbling of different, more intimate experiences happening prior to the COVID wave.

Art collectives like Meow Wolf inspire, awe and generally bring you into another world (sadly they have had to lay off staff due to the stay at home orders). Instagrammable locations like the Museum of Ice Cream have spawned numerous copycats. These don’t have to be on this grand of scale though. They can be intimate concerts, unique dinners, or interactions with a certain person and their unique way of life.

Both of these areas in experiences were taking off in a big way prior to 2020.

But now, COVID has dropped a bomb on the experiences market, and in person interactions are met with suspicion and fear. How will new behavior change going forward and how will that affect the experiences landscape?

How will Behavior Change in the Short-Term and Long-Term?

For those in the US and many other countries, we know how behavior has changed in the short-term. People have been confined to their homes, forced to stand at 6-feet, wear masks. But this has been by mandate. If this wasn’t mandated, would people still follow these precautions? Will people actively move out of cities, avoid people and self-isolate in smaller communities?

Hard to say. But we can make some assumptions based on other widespread epidemics.

The Spanish flu, or the 1918 flu epidemic, ended up infecting 500MM, killing 50M, leaving devastation in its wake. However, the disease did fizzle out within ~ 1 year of the first reported deaths.

What this chart shows us, is that with minimal action taken by governments or the populace (and a full re-opening, no contact tracing, etc..) will lead to at least two more major outbreaks.

You’ve likely heard how contagious this COVID-19 disease is, and that boils down to its Ro. Ro indicates the average number of people who will catch a disease from one contagious person. If Ro equals 1, each existing infection causes one new infection. The disease will stay alive and stable, but there won’t be an outbreak or an epidemic. If the Ro is greater than 1, each existing infection causes more than one new infection. The disease will spread between people, and there may be an outbreak or epidemic.

The question is, as it refers to human behavior, while Ro is closer to or greater than 1 (our short term reality), how will people react? Will the data from past epidemics be enough to deter the human interaction needed for meaningful experiences as they exist now?

With the rise of remote work and nothing necessarily tying anyone to any specific location, it will be interesting to see how the flow of humans will move. Where will people choose to live? This has a marked importance on experiences, because experiences are generally set up around cities where people coalesce.

The Death of Cities?

Let’s explore this idea, because it can have a very real effect on the experiential market and how experiences look going forward. Most experiences are best when done with other people. We humans are social creatures after all. Cities packed with humans create experiences by their very nature, like atoms colliding to form new elements.

There have actually been many cycles of cities rising and falling, people moving in and out both for opportunity and for space. Cities aren’t some forced construct set in stone. They are constantly moving, evolving.

But aside from the work opportunities, there are other reasons why we form cities. We humans seek out other humans. That is how cities are formed. Is New York City just the sum of people seeking the best economic opportunity? I’d argue that no, that is not what NYC is. NYC would exist, if not in Manhattan, wherever like minded folks chose to coalesce.

Regardless of the motivations, one thing is for sure. Prior to this COVID blip, urbanization had been growing at a rapid rate.

Recently, it was estimated that ~3 million people are moving to cities every week around the world. Between 50 and 60 percent of people worldwide live in cities, in stark contrast to 30% in 1950. Based on studies done a short while ago, sources estimate this will grow to 2/3 of world population in the next 15–30 years!

And the concentrations appear to even greater at the top. There are ~38 megacities as of 2020 (defined as having populations over 10 million), up from 2 in 1950. That number will be above 50 in 2030. Additionally, there are ~512 cities with a population of over 1 million as of 2020, up from 83 in 1950. A Yale research group projects that cities will cover ~ 10% of the planet’s land by 2030.

This trend is more mature in the United States, but specific cities are still growing. Today, 82% of North Americans live in urban areas and are increasingly concentrating in mid-sized and large cities. In 2020, there are ~50 urban areas in the United States with more than 1 million people.

It’s debatable whether or not this movement into US downtown areas is sustainable (especially now in a post COVID world). But it has clearly been occurring as a general trend.

An interesting thing to keep an eye on will be how much economics drives this move to cities, and how this will change in the wake of widespread work from home mandates. Concentration of wealth creation leads to products and services that support these centers of wealth creation. As organizations grow and become more bloated (Google, Facebook, Amazon, etc..), they need hyper-specialized folks that fulfill specific needs. These folks, historically, tend to interconnect in physical locations (cities) and share mindshare.

Network effects have driven employees to these cities, but will remote work and video conferencing be enough to facilitate these interconnections? Maybe people will hire from all over the world. But will this work on a grand scale? Time will tell. Many of the largest tech companies speak ad-nauseam about community, but can you foster that with a fully remote work force? WordPress and others say yes. But it has not been proven on a wider scale. Maybe this will lead to less loyalty than there already is in industries like technology. Without the relationships cemented by in-person interactions, will people care to work on projects over the longterm? That’s a discussion for another day.

Economics aren’t the only things at play when it comes to urbanization as well. Lifestyle preferences and attitudes factor in, in a huge way. People want to be around like minded people. People want to feel connected to friends, community, etc… Young people especially, whose energy drive urban centers, have historically wanted to be around other like-minded young people. It will be interesting to see, given the choice, if workers move out of cities. Or will they realize that suburban life doesn’t provide the same experiences as cities do.

This urbanization trend was clearly growing pre-COVID. But will COVID stop urbanization in its tracks? In the San Francisco area, where many tech workers have been given carte blanche to work from home, people are contemplating a move to less expensive or crowded areas.

We could be seeing the seeds of fully remote work being accelerated as business owners realize that they can maintain their operations without having a centralized office. Some companies have pulled this off.

Then the question becomes: if work doesn’t tie people to urban locations, will people still choose to live there? This is interesting and only time will tell. As mentioned above, lifestyle preferences and attitudes definitely have a hand in this as well. Humans seek out the tribe. Being isolated is dangerous. That is why longer-term, I’m bullish on in-person experiences making a come-back.

Future Experiences

So given all these trends occuring, how will experiences look in the future?

One obvious answer in the short term may be that this speeds up the development and adoption of VR and AR experiences. NBA games may be played with empty stadiums, but you can pop on an Oculus Rift and *POOF* you’re there with 70,000 others. Using VR for sports was already an obvious use case for those who didn’t want to purchase full tickets to the game (or make the effort to go there). But now this could be a sweeping trend. Sports was likely going to be VR’s greatest chance at moving beyond its gaming roots to a wider audience, and the lack of safe ways to have audiences in stadiums is the perfect opening for the medium.

This VR trend has already extended into virtual worlds that originally were built on engines for gaming (like Fortnite), but are expanding into full on social arenas.

But can digital interactions sate our need to be part of tribes? To have human connection? As I mentioned above, humans seek out other humans — they need to be part of a tribe.

If Social Media hasn’t filled this hole, what makes us think that virtual experiences can? Virtual worlds have been tried before (like second-life and World of Warcraft), but did they spur wider adoption, or just a niche gaming audience?

Then again, the drive for experiences is all about having a unique experience and being able to share it with others. If the virtual experiences can capture these both, then they may succeed. It will be interesting to see what takes off and potentially causes a new paradigm shift.

The other aspect of experiences that could work in the future given the new reality is in-person experiences that break people into smaller groups (couples, for instance) and have them interact in sequence with certain environments or entertainment. They can be museum like experiences (like the Museum of Ice Cream or Meow Wolf) that can be experienced group by groups in sequence.

Festivals, Concert Venues, Hotels and others will have to evolve, at least in the short term. How do you foster in-person interaction (the best parts of these experiences) without interaction? The best parts of these experiences are around the serendipity of meeting new people, bumping into them, having conversations, making new friends, finding new loves. I’m dubious as to whether that can get fully ported to a digital landscape.

Perhaps we could maintain contact tracing to only allow healthy individuals to be put in close proximity at these events. Clean test required to enter. But maybe that is too much to ask. Their models will need to be changed, or they will likely die.

What I think will ultimately unravel is a move towards much smaller scale, intimate experiences (2–10 people) that are focused on meaningful connection — even at a distance. These can be small scale concerts, readings, speeches, and more.

Will Gen-Z Care?

This is coming from the perspective of a millennial. But maybe this idea of in-person human interaction is antiquated to Gen-Z. They don’t know a world without the internet or the smart-phone (the oldest amongst them was 10 when the first iPhone was released). The majority of their social interactions, status plays and coming of age were designed around Snap, Instagram and Tik Tok. They’ve made a guy famous for commenting on other people playing video games.

Maybe to Gen-Z, their idea of an experience is completely online based. I read an article a while ago, with an apt title: For Generation Z The Digital Experience is the Human Experience. If that’s the case, companies like IRL pivoting to virtual events might be exactly the right strategy for this younger audience.

Maybe the only events they need are the ones where a new meme-dance takes hold on Tik Tok and then witness the cultural phenomenon take hold and participate as well. If so, it will spell the death knell for the larger festivals and experiential gatherings that took off with Millennials. It will be interesting to see how that shakes out.

Mental Health and Experiences

One last thought is on this idea of mental health and experiences. Coincidentally or not, the rise of social media has been paired with a rise in anxiety and depression rates.

We humans were raised in the wild, in nature, in tribes. We hunted, gathered, intermingled and used our collective resources to survive.

I’ve often thought about VR and its ability to “trick” your limbic system into thinking you were walking in nature (one thing that has been proven to improve mental health). Does a digital experience of a sunrise give you the same warmth and feeling in your soul as seeing or feeling it on a backpacking trip? The same feeling of accomplishment and fun as swimming through a lake?

The same line of thought can be extended to the tribal interaction component. Some studies have shown that loneliness can be just as deadly as smoking a pack of cigarettes a day, and more and more people in cities are experiencing loneliness despite being surrounded by other people. In-person experiences were supposed to be a cure for that.

Will a digital experience connecting people solve that? I’d reckon no.

Conclusion

So, what did we learn today? The experiential space in both revenues and interaction was growing at a breakneck pace prior to COVID-19. Urbanization was also on the rise, which helped experiences grow. Experience companies have been hit extremely hard by the stay at home policies mandated by local governments. Even with areas opening up, it is yet to be seen how consumer behavior will change.

Will people move out of cities? Will they shun in-person human interaction for the for-seeable future? History shows us that the virus will pass after more outbreaks occur. I believe that over the longterm, in-person experiences will return, but may be more focused on intimate, small affairs.

Over the short-term, digital experiences connected to VR and AR and video-conferencing will take over. And if Gen-Z continues on their current trajectory, they may take up the mantle for digital experiences and that may become the new normal. Events like Burning Man and Coachella might be things that “mom and dad” attended. However, this could have a marked impact on mental health, as we humans want to be connected. And connection is what in-person experiences promised to bring to us.

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